What is a public Company?
Many people perceive the public Company as the Company having a public share. However, the public Company is essentially a corporation where the ownership is distributed to various people by the general public shareholders through free trade of the shares in the nation’s stock exchange. Daily trading in the market is one of the best ways of determining the true values of the Company. A Company can be termed as public when shareholders can purchase the Company’s stock.
The Different Types of Companies in India
India is one of the fastest-growing economies in the world and the service industry needs appreciation for its contribution to the economy of the country. Many foreign investors have now turned their attention to Indian, considering its immense potential, for future investments. Some of the different types of Companies in India are as follows: Public Company, Private Company, Joint-venture Company, Partnership firm, person Company, Sole proprietorship, Branch office, and Non-government organisations.
Private Company and Public Company
The Private Company differs from the Public Company in several different ways. The public Company is publicly traded in the open share market of the nation. Comparing a public Company to a Private Company, public Companies tend to have a specific advantage. Some of the public Companies in India are the State Bank of India, Indian OIl Corporation, and Hindustan Petroleum Ltd.
According to the definition of the public Company, the Company having a minimum paid-up share capital of a minimum of Rs. 5 lakh or more is described as a public Company. The member's list of the public limited Company has no end. There is no limit on the maximum capacity; however the minimum number of the owners should be at least seven, and the minimum number of directors should be three simultaneously.
In contrast to the public Companies, the Private Company needs to have a minimum of two founding members and also the Company must have two directors. The founding members of the Company are also eligible for becoming directors as well. The minimum capital should be 1 lakh.
For the Private limited Company, each of the shareholders’ liability or Company members are limited. Due to this, if the Company experiences a loss, Company members and the shareholders are completely reliable and they have the option of selling the Company’s share for clearing out the debt. The asset of the shareholders is not at risk, so you don’t have to worry about selling your land or apartment when the Company is in a dire state.
FAQs on Types of Companies: Explained
1. What defines a 'company' as a form of business organisation according to Indian law?
A company is defined as an artificial legal person created by law, with a distinct identity separate from its members. Key characteristics include perpetual succession (it continues to exist even if its members change), a common seal (acting as its official signature), and most importantly, a separate legal entity. This means it can own property, enter into contracts, and be sued in its own name. All companies in India are governed by the Companies Act, 2013.
2. What are the key differences between a Public Limited Company and a Private Limited Company?
The primary differences between a Public and Private Company revolve around membership, share transfer, and capital requirements. Key distinctions include:
- Minimum Members: A Private Company requires a minimum of 2 members, while a Public Company needs at least 7.
- Maximum Members: A Private Company has a maximum limit of 200 members, whereas a Public Company has no maximum limit.
- Transfer of Shares: Shares are not freely transferable in a Private Company and are subject to restrictions in its articles. In a Public Company, shares are freely transferable and often traded on a stock exchange.
- Public Invitation: A Private Company is prohibited from inviting the public to subscribe to its shares or debentures. A Public Company can raise capital from the general public.
- Number of Directors: A Private Company must have at least two directors, while a Public Company must have a minimum of three.
3. What is a One Person Company (OPC) and what are its main features?
A One Person Company (OPC) is a type of private limited company that can be formed with just one member. Introduced by the Companies Act, 2013, it allows a single entrepreneur to operate a corporate entity with limited liability. Key features include having a separate legal identity, limited liability for the owner, and requiring the appointment of a nominee who would take over in case of the sole member's death or incapacity.
4. Why is the concept of a 'separate legal entity' considered the most important advantage of a company?
The concept of a separate legal entity is crucial because it creates a legal distinction between the company and its owners (shareholders). This distinction provides two major benefits: limited liability, where the personal assets of the owners are protected from business debts, and perpetual succession, which ensures the company's existence is unaffected by the death, retirement, or insolvency of its members. It allows the business to have a life of its own, enhancing stability and its capacity to raise funds.
5. How does 'limited liability' in a company actually protect a shareholder during business losses?
Limited liability means a shareholder's financial obligation to the company is restricted to the nominal value of the shares they own. If the company incurs heavy losses or debts it cannot pay, the shareholder is only liable to pay the unpaid amount on their shares, if any. For instance, if you own 100 shares of ₹10 each and have already paid the full ₹1000, your personal assets like your house or car cannot be used to pay off the company's creditors. Your maximum loss is capped at your investment in the shares.
6. Besides Private and Public, what other ways are companies classified under company law?
Companies can be classified based on different criteria other than the number of members. A primary classification is based on liability:
- Company Limited by Shares: The liability of members is limited to the amount unpaid on their shares. This is the most common type.
- Company Limited by Guarantee: The liability of members is limited to a specified amount (the 'guarantee') they promise to contribute in the event of the company being wound up. These are typically non-profit organisations.
- Unlimited Company: The liability of members is unlimited, and their personal assets can be used to settle the company's debts. This type is rare.
Companies can also be classified based on control, such as Holding and Subsidiary Companies.
7. What are the two most fundamental documents required for incorporating a company in India?
The two foundational documents required for the incorporation of any company are the Memorandum of Association (MoA) and the Articles of Association (AoA).
- The MoA defines the company's constitution and scope of activities. It specifies the company's name, registered office state, main objectives, liability of members, and authorised share capital. The company cannot operate beyond the objectives stated in the MoA.
- The AoA contains the internal rules and regulations for the management of the company's affairs. It outlines the rights of shareholders, procedures for board meetings, and the powers and duties of directors.
