Introduction
The Companies Act of 2013 brings essential modifications to Indian corporate governance that enforce both stakeholder defense and enhanced transparency and accountability across the business landscape in the country. This act creates business legal structures by organizing companies according to their essential criteria such as ownership status and liability level and business dimensions which provides a versatile law enforcement system. The Act promotes local business law compliance with international norms to support business startup activities through responsible practices that include Corporate Social Responsibility (CSR) standards. The success rate of reforms depends on effective implementation in real-world operations since legal compliance combined with proper governance stands as fundamental elements for achieving the Act’s main goals.
Historical Background
Indian corporate law has continued to evolve in tandem with changing economic environment in the country. The backdrop for drafting The Companies Act, 1956, was a newly independent country where the focus was on industrial growth and development, thus facilitating businesses. But as the Indian economy started integrating more with global markets, this law became obsolete, often acting as a deterrent to innovation.
The call for a change emerged in the 1990s, when economic liberalization took place, but it was only after years of discussion that the Companies Act, 2013, materialized.
This reform was designed to simplify business regulations, provide better accountability and enhance investor protection. The 2013 Act, unlike its predecessor, is more future-oriented, taking a proactive approach to changes in the business landscape.
Types of Companies Under the companies Act , 2013
The Companies Act, 2013, has facilitated the classification of various types of companies in India based on factors such as ownership, objective, and liability. These classification contribute to the smooth functioning and regulation of businesses. some of the key types of companies include
Company Based on Number of Member
A . One Person Company (OPC) : The One Person Company (OPC) serves as a corporate structure stated in section 2(62) of the company act, 2013 which represents a solitary member private company. This business entity provides full control to entrepreneurs over their business ownership without compromising the legal structures of company organization.
OPC differs from a sole proprietorship by offering separate legal identity and limited member liability though the sole proprietorship owner carries unlimited responsibility. The formation of OPC requires no fixed amount of minimum capital to establish.
The law restricts OPC incorporation or sole member nominations to Indian citizens or residents who resided in the country for at least 120 days before the current fiscal year. Person below the age of eighteen cannot be member or nominees of OPC. OPC lacks the ability to transform into a company structured under Section 8 of the Act.
B . Private Limited Company : A Private Limited Company functions as defined under Section 2(68) of the Companies Act, 2013 where it consists of minimum two members yet maximum membership limits at 200 participants but these membership limitations exclude employees and previous staff who maintain shareholder positions.
A Private Limited Company stops short of public advertisement for share or debenture subscriptions because its shares have restricted transferability. For this registration a company must add “Private Limited” to its official name.
C . Public Limited : Defined in Section 2(71) of the Companies Act, 2013. A Public company requires a minimum of seven members for establishment while it lacks any limit on maximum member count. A Public company enables unrestricted trading activities regarding shares by its owners.
Public company subsidiaries that derive from public corporations also fall under the category of public companies. By definition Public Company enables smooth share transfers and its names require inclusion of “Limited” at their conclusion.
When a company disobeys the specific provisions defined by the Companies Act it automatically loses its designation as a Private company. A Public company that wishes to become a Private company must obtain the approval of 75 percent of its general meeting through special resolutions.
D . Section 8 Company : Section 8 Company operates as a group known for its charitable objectives. Section 8 of the Companies Act in 2013 establishes rules for companies whose purpose is to support the charitable objectives of commerce, art, science, sports, education, research, social welfare, religion, charity, environment conservation and so forth. The organizations must use their profits to back their operational targets. All profits within Section 8 companies remain restricted from being distributed as dividends to their member shareholders.
The Central Government exercises strict oversight of Section 8 companies through regulations which grants itself the power to revoke licenses or take appropriate action.
Company Based on Liability
A . Company Limited by Shares : Company Limited by Shares describes a corporate entity according to Section 2(22) of the Companies Act 2013 where member accountability extends only to share-free amounts per Section 2(22).
A shareholder must only contribute the unpaid shares’ value when the company needs funds to pay debts. The individual assets of shareholders remain out of reach when the company seeks to pay its debts.
Under legal interpretations the company maintains full ownership of its assets since it operates as an independent entity from shareholders. Each shareholder maintains ownership of the company itself yet he does not possess ownership of its assets. Shareholder co-ownership rights derive from the equity value of their stock.
B . Company Limited by Guarantee : Defined under section 2(21) of the Companies Act, 2013. Members of a Company Limited by guarantee must contribute no more than their agreed guarantee to the company assets.
According to the memorandum the liability of members in a Company limited by Guarantee extends only to the agreed amount mentioned in that document. Members must pay an agreed sum for winding up of the company yet the payment limitations stand at the amount specified in the memorandum.
C . Unlimited Company : Harboring no member liability restrictions, an Unlimited Company exists as per Section 2(92) of the Companies Act, 2013. The responsibility of members within an Unlimited company ends upon their departure from membership status. Every member’s liability extends to the full amount of company responsibilities but they can demand contributions from remaining members.
The Articles of Association needs to specify share capital details along with individual share values whenever the company maintains share capital. The official liquidator can force company members to make contributions for company liabilities through certain liquidation procedures that maintenance creditors can start.
Company Based on Size
A . Micro Company : Public companies of this size qualify for national government benefits under the MSME Act through size-based qualification.
A micro company refers to a company whose plant and machinery investments reach maximum ₹1 crore and where annual turnover does not surpass ₹5 crores.
B . Small Company : A Small Company consists of a business entity which maintains plant and machinery investments below ₹10 crore and annual revenue less than ₹50 crore. The Companies Act, 2013 delivers various advantages to small businesses due to its provisions.
The Companies Act classifies an organization as small with capital below ₹4 crore and annual transactions under ₹40 crore.
C . Medium Company : Medium companies stand as organizations whose plant and machinery installations and yearly turnover remain below ₹50 crore and ₹250 crore respectively.
Company Based on Control
A . Holding Company : The holding company functions as a parent entity because it maintains enough voting share ownership in another company. Through its shareholding arrangement the Holding company gains control to steer both policy decisions and management directions at its subsidiary company.
Holding ownership or exerting management control functions serve as different methods to achieve control. Nestle and Goldman Sachs and other companies maintain the status of holding companies.
B . Subsidiary Company : A subsidiary company serves to fulfill Section 2(87) of the Companies Act 2013 by being a company whose voting power belongs to the holding company and allows it to control board management.
The Holding company holds control when it possesses rights to both appoint and dismiss the majority of board members.
Company Based on Listing
A . Listed Company : A listed company operates under Section 2(52) of the Companies Act, 2013 since it lists its securities on any Indian or international recognized stock exchange. Companies falling under this category that maintain listed or intended listing of prescribed securities as specified by SEBI will not qualify as listed firms.
Stock exchange trading can occur freely with listed company shares. SEBI exercises strict oversight of all listed companies through its regulatory mandate. Prior to listing its shares for stock exchange trading a company enables the public to subscribe to securities through its issued prospectus.
A company becomes able to offer shares through an Initial Public Offer (IPO) although companies that have already listed will utilize Further Public Offer (FPO). Establishments with public status are the sole entities eligible for stock exchange listing. Tata technologies, Adani Ports, Titan and MRF together with several other entities operate as listed companies.
B . Unlisted Company : The definition of unlisted company refers to any company that has no presence on any worldwide stock exchange. Its two security types do not trade freely on any stock exchange market. Unlisted companies cannot gather funds from the general public unless they get their financial requirements met by accepting funds from friends and family members alongside financial institutions or through private placement.
An unlisted company seeking stock exchange listing of their securities needs to issue a prospectus before conversion to a Public company. The lack of exchange-listing makes unlisted companies’ shares unsuitable for purchase or sale in any available market. Therefore their securities remain illiquid. Public organizations together with private enterprises comprise this category.
Conclusion
The Companies Act of 2013 has brought a substantial change to Indian corporate governance through modern reforms which promote transparency alongside stakeholder defense and increased corporate accountability. This act creates business legal structures by organizing companies according to their essential criteria such as ownership status and liability level and business dimensions which provides a versatile law enforcement system. The Act promotes local business law compliance with international norms to support business startup activities through responsible practices that include Corporate Social Responsibility (CSR) standards. The success rate of reforms depends on effective implementation in real-world operations since legal compliance combined with proper governance stands as fundamental elements for achieving the Act’s main goals.
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