A COMPARATIVE ANALYSIS OF DIFFERENT TYPES OF COMPANY UNDER THE COMPANY ACT, 2013

A COMPARATIVE ANALYSIS OF DIFFERENT TYPES OF COMPANY UNDER THE COMPANY ACT, 2013 

Author: Aney Verma, a student of Symbiosis Law School, Noida 

Abstract 

The commercial enterprise panorama in India is characterised by the aid of numerous entrepreneurial ventures, each with wonderful desires, operational systems, and regulatory requirements. The Companies Act, 2013, serves as the cornerstone of corporate governance and law, imparting a complete framework for the status quo, operation, and governance of agencies. Under this legislative framework, various types of organisations are described, each offering a completely unique set of traits and advantages. This challenge embarks on a journey of comparative analysis, delving into the intricacies of various agencies as delineated via the Companies Act, 2013.

The comparative analysis of different types of companies under the Company Act, 2013 will help business organisations, policymakers, and bureaucrats make a decision regarding which company is suitable for their venture. Highlighting the distinction between different types of companies, board members, directors, subscribers’ members, merits and demerits, etc. will help us make more clear decisions regarding which company should be more useful to us.

What is a company?

Section 2(20) of the Companies Act 2013 defines a “company” as an association of persons fashioned for the purpose of carrying on a commercial enterprise with the purpose of creating an income.

This definition consists of personal and public organisations, one-man or woman groups, and Section 8 of the Act. It also consists of businesses included under previous business enterprise laws, such as the Companies Act, 1956.

The key factors in the definition of a company under Section 2(20) are:

Association of people: An enterprise must be an association of at least two people. This method means that a single man or woman can’t shape a corporation on a personal level.

Purpose of carrying on the commercial enterprise: An employer should be shaped for the purpose of carrying on the enterprise. This approach is that an employer can’t be fashioned for, in basic terms, charitable or spiritual purposes.

The intention of creating earnings: An organisation must have the intention of making an income. This method that a company can’t be fashioned for simply non-business functions.

The definition of company is inclusive in nature, and it does not describe what a company is in a clear sense.

Classification of companies:

• Classifications based on size are private company, public company, and one-person company.

Private Company: Section 2(68) of the Company Act, 2013 defines “private company.” In simple words, a private company is one that is not public in nature. A private company needs to fulfil these requirements:

1. restricts the right to switch stocks: A non-public company should restrict the right to transfer its shares. This method means that the stocks of a personal company cannot be freely transferred to a third party without the consent of the other shareholders.
2. limits the wide variety of its contributors to two hundred: A private company should restrict its participants’ range to two hundred. This means that a non-public company can’t have more than two hundred individuals.

Section 3(b) of the Company Act, 2015 mentions that at least two people are required to form a private company by subscribing to the memorandum and accepting the requirements of the act.

Section 149(1)(a) of the Company Act, 2013 mentions that there should be 2 directors in the case of a private company, and there can be 15 directors through a special resolution.

Merits of a private company:

• Limited liability: The liability of the participants of a non-public business enterprise is limited to the quantity unpaid on their stocks. This means that the participants aren’t individually liable for the debts of the corporation.
• Flexibility: Private agencies have more flexibility than public-confined groups in terms of their management and operation. This gives groups extra control over their operations.

Demerits of a private company:

• restricts the right to switch stocks: A non-public company should restrict the right to transfer its shares. This method means that the stocks of a personal company cannot be freely transferred to a third party without the consent of the other shareholders.
• Maximum wide variety of members: The range of members of a private corporation is restricted to 200. This may be a downside for corporations that need to develop beyond a certain length.

Public Company: Section 2 (71) of the Company Act, 2013 defines “public company.” In simple words, a public company is one that is not private in nature. In a public company, the public could hold and buy the shares of the company. A public company needs to fulfil these requirements:

1. Is not a personal employer: A public company is not a private corporation. This method that a public employer uses now does not have restrictions on proportional transfers or the number of contributors imposed on private agencies.
2. It is now not a subsidiary of a non-public organisation. A public enterprise cannot be a subsidiary of a non-public organization. This means that a public employer cannot be controlled by means of a personal organisation.

Section 3(a) of the Company Act, 2015 mentions that at least seven people are required to form a private company by subscribing to the memorandum and accepting the requirements of the act, and there is no limit on the maximum number of members.

Section 149(1)(a) of the Company Act, 2013 mentions that there should be 3 directors in the case of a private company, and there can be 15 directors through a special resolution.

Merits of a public company:

• Ability to elevate capital: Public agencies can raise massive quantities of capital by promoting shares to the public. The ability to raise capital will help the public company grow funds through expansion and acquisitions.
• Widening the shareholder base: Public groups have a much wider shareholder base than private companies. This can help spread risk and reduce the enterprise’s dependence on a few key traders.

The demerits of a public company;

• Enhanced government and regulatory scrutiny: Public companies are subject to greater government and regulatory scrutiny than private companies. This can increase marketing costs and complicate decision-making.
• Loss of control over the company: When a company goes public, its founders and initial investors lose control of the company. This is because they don’t have a majority stake.

One Person Company: Section 2(62) of the Company Act, 2013 defines “one person company.” A one-person agency (OPC) is a company that has one person as a member. The corporation can have one director, who may be the same person as the member. OPCs are a highly new type of business enterprise in India, and they were first delivered under the Companies Act, 2013.

1. Only one member is the sole shareholder.
2. consists of only one member.

Section 3(c) of the Company Act, 2013 mentions that where one person is from a company, it will be considered a one-person company.

Section 149(1)(a) of the Company Act, 2013 mentions that there will be only one director in a one-person company.

Merits of a one-person company

• Less compliance requirements: OPCs have fewer compliance requirements than other types of entities. This is because they cannot have a separate board of directors or share capital.
• Simplified processes: The processes for setting up and maintaining an OPC are more straightforward than those of other types of companies. This makes setting up and implementing the OPC easy and inexpensive.

The demerits of a one-person company

• Limited legal responsibility: The liability of the member of an OPC is restricted to the amount of the member’s funding in the company. This approach means that the member’s private assets aren’t in danger if the enterprise fails. However, this additionally means that the member cannot enjoy the unlimited legal responsibility of an employer.
• Lack of liquidity: Shares in an OPC are not transferable without problems. This way, it can be hard for the member to promote their stocks if they want to.

• Classification based on liability

1. Limited by shares: In this form of company, the legal responsibility of its individuals is constrained to the amount they have invested in the enterprise’s stocks. If the agency faces economic problems or becomes bankrupt, the shareholders aren’t, in my view, accountable for the enterprise’s debts beyond their shareholdings. Most groups, consisting of private restrained and public confined agencies, fall under this category.
   
2. Limited by guarantee: In an enterprise restrained via guarantee, the liability of its contributors is confined to the amount they have agreed to make contributions to the enterprise’s assets on the occasion of polishing them off. These organisations are regularly used for non-profit or charitable functions, wherein the focal point is on reaching certain goals instead of producing income. Examples include clubs, institutions, and charitable organizations.
   
3. Unlimited company: In an unlimited company, there is no limit on the liability of the members in the event of a liquidation. Members are personally responsible for supporting the expenses and obligations of the company. This programme is minimal due to the high level of personal responsibility associated with it.

• Classification based on control

1. Holding company: A holding company is an enterprise that has control over another corporation (referred to as the subsidiary company). Control is described in Section 2(27) of the Act as the right to rent the majority of the administrators or to govern the management or coverage decisions exercisable with the aid of someone or humans performing collectively, at once, or circuitously, whether or not through the protection of shares or otherwise.
2. Subsidiary agency: A subsidiary organisation is an employer that is controlled by means of another organisation (the keeping employer). Section 2(87) of the Companies Act, 2013 defines a subsidiary organisation as an organisation wherein a holding enterprise has a controlling interest.
3. Associated employer: A related business enterprise is a company that isn’t always a subsidiary agency of the business enterprise but is below its vast reach. Section 2(27A) of the Companies Act, 2013 defines an associated business enterprise as an agency in which a company has a considerable influence but is now not a controlling hobby.
   

Conclusion  

The concept of an enterprise under the Companies Act, 2013, is described by Section 2(20) as an association formed with the purpose of carrying out earnings-producing business activities. This definition encompasses numerous forms, such as personal, public, and unmarried-member groups, as well as those formed for charitable functions. Companies are classified based on length, with non-public businesses having restricted transferability of shares and a cap of two hundred participants and public agencies being unrestricted and capable of offering shares to the public. Additionally, the advent of one-person companies (OPCs) permits unmarried people to set up entities with restricted legal responsibilities. Companies can also be categorised primarily based on liability, with companies restrained via stocks offering legal responsibility limited to invested capital, businesses restricted through guarantees related to participants who guarantee quantities for organisation obligations, and limitless organisations with unrestricted liability. The class extends to control, in which maintaining groups exercise management over subsidiaries, subsidiary agencies are managed by way of maintaining organisations, and associated groups display huge influence without full manipulation. This multifaceted panorama presents organisations with diverse structures to align with their objectives, supplying flexibility, capital-elevating opportunities, and criminal safety.

Bibliography 

Christa, ‘Company limited by guarantee and company limited by shares: which one is for you?’, 2022, Legal Service India E-journal, https://www.legalserviceindia.com/legal/article-10892-company-limited-by-guarantee-and-company-limited-by-shares-which-one-s-for-you-.html, 11-08-2023 

Dr. G.K. Kapoor and Sanjay Dhamija, Taxmann’s Company Law: A Comprehensive Text Book on the Companies Act, 2013, 25th Edition, Taxmann, 2023

corporate law advisor, LMP”s Company Law Procedures (6th edition), legal matrix publication, 2023. 

Taxmann’s Company Law Manual, 20th Edition, Taxmann Publisher, 2023

The Company Act 2013, s. 2(20)

The Company Act 2013, s. 2(68)

The Company Act 2013, s. 3(b)

The Company Act 2013, s. 149(1)(a)

The Company Act 2013, s. 2(71)

The Company Act 2013, s. 3(a)

The Company Act 2013, s. 149(1)(a)

The Company Act 2013, s. 2(62)

The Company Act 2013, s. 3(c)