An overview of the types of companies in India

The development of a country’s economy largely depends on its capacity to produce and trade goods. It is the business entities, particularly the types of company that help accomplish this task. India is one of the most swiftly augmenting economies globally, and its development is backed by its numerous companies. According to the reports from Statista, there were nearly 1.26 million registered companies in India by September 2020.

Post the pandemic, many foreign companies are looking to shift their base to South Asia, predominantly India. The merits of registering a company in India are infinite. One can find pros such as well-trained professionals, supportive tax incentives, considerate government policies, massive markets, and this list continues. With these add ons, foreign investors tend to register their company in India. They can set up a company based on their purpose, financial goal, and initial investment plans.

An insight into the types of company in India can prove quite helpful. Our team at Gotaxfile is here to help you clear your ambiguities surrounding the types of company in India and the registration procedures involved with the same.

First, let us begin with understanding the definition of a company.
According to the Companies Act 2013,

A company is an entity which is registered under the prevailing Companies Act or any other predecessor company laws.In common parlance, it is a separate legal entity incorporated under a common seal with perpetual succession.

It has a common capital which is categorised into shares with limited liability.

Insight of different types of companies in India

There are different types of company which one can register in India. The types of company in India are catalogued based on various aspects. The segmentation can be done based on the number of members in the company, based on liability, based on the control, based on their scale, and based on the way capital is accessed. The significant types of company in India that are further classified into various sub-categories as enlisted below:

1. Private limited companies:

The most common and widely opted choice amidst the types of company in India is the private limited companies. The main merit is that there is no minimum requirement for investment. It can be registered if there are a minimum of 2 members known as the directors. The liability of each member in this type of company is limited. Also, the succession of the company is very facile in case of death or loss.

2. Public limited company:

As per the technical meaning, a public company is a company other than a private company. Most leading companies in our country are publicly traded companies that substantially impact India's economy. The public companies, also recognised as publicly traded companies, are those whose shares or debentures can be traded freely on a stock exchange. These kinds of companies have a minimum of seven stakeholders, and each member's liability is limited.

3. One person company:

In this type of company in India, only one individual acts as a member. This form of company was introduced as a transformational move as per the modern business requirements. In this type of company, the sole member must be a resident of India. A venture registered as a one-person company should suffix the name OPC with its name. Many local shops and businesses are usually registered as this types of company in India. After the "Vocal for Local" campaign, these businesses have blossomed to a large extent.

4. Company limited by shares:

These types of companies are classified based on liability. In this type of company, the capital is divided into tiny parts called shares. These shares are distributed among the shareholders. Whenever there is a requirement of wealth, the shareholders contribute. A portion of the profits generated is distributed among the shareholders. These types of companies can be registered as a private limited, public limited, or a one-person company based on the number of members.

5. Company Limited by guarantee:

The ownership of this type of company is established on the amount that the shareholder guarantees. The amount guaranteed is the basis for the percentage of ownership of the company. Whenever there is a need for capital, the guarantors contribute towards it. The liability of the members is limited up to the amount that is signed as a guarantee.

6. Foreign company:

These forms of companies are legally registered outside the territory of India. It has a business place in India by itself or via an agent or electronically to carry out business operations locally.

7. Section 8 companies:

These were earlier known as section 25 companies under the Companies Act, 1956. People incorporate Section 8 companies to undertake non-profit activities. There is a minimum requirement of two directors, and they must be residents of India. Their names mostly end with the terms of "Foundation" or "Charitable trusts."

8. Producer company:

These companies are relevant for businesses in India's primary sector, such as farming and fishing. There is a requirement of a minimum of 10 members for these types of company in India. Their main focus is to provide or carry the activities such as production, harvesting, processing. The name of these companies ends with "Producer Company Limited."

9. Small companies:

The Companies Act 2013 has recently introduced the concept of a small company. It is simply a private company with lesser turnover and investment. The conditions to make a company into a small company are that the paid-up share capital must not cross the specified limit as per the rules. The company's annual turnover should also remain within the given threshold. As per the recent budget announcements, the paid-up capital for a small company should not exceed Rs. 2 crores, and the yearly turnover should be up to Rs. 20 crores.

10. Holding company:

A holding company means a company that controls one or more subsidiaries. It is also called the parent company. It holds majority shares or voting power in its subsidiary company. Many conglomerate ventures in India adopt the system of having holding and subsidiary companies.

11. Subsidiary company:

These companies are a subpart of a parent company, also called the holding company controls. The company members' composition is handled by the parent company, which may also control more than 50 percent of the stake in the subsidiary company.

Confused as to which types of company in India is best for your business?
The process of incorporation of a company can seem like a hassle for most entrepreneurs. From incorporation, drafting the MOA and AOA, and getting the commencement certificate from the Registrar, it may look like a maze of never-ending compliances. It is where Gotaxfile can come to your rescue! Our sterling team can help you set up your company in India, right from registering it to paying your income tax returns.

Setting up a company couldn't have been easier; Gotaxfile provides assistance through their mentoring program and can help you at every step. All you have to do is log in to our website, and you can start your journey of establishing any of the types of company in India from the convenience of your home. We can set up your company and even helps you in its smooth administration with our tax and accounting. Do not worry if you are new to all the technicalities. Gotaxfile has got you covered. Reach out to us now!