As we know that a company is an independent legal entity where a group of people who work together to achieve a common goal. A company has many pros and cons like limited liability and double taxation. However, we’ll discuss the types of companies today. Here are some of the major types of companies and their sub-categories as well, and they’re as follow;
Table of Contents
Types of Companies Based on Incorporation
Incorporation is the process of legalizing a company and making it an independent entity, completely separate from its owners. When the process is complete; terms like limited or Inc are used at the end of it. Incorporation has three major sub-categories and here they are;
Charted companies or royal charted companies are such entities that are usually created by the royal families, monarch, king, queen or some sort of special order. Investors and stakeholders of such companies, as the name implies, are from the higher upper-class society or government and they have special privileges.
Bank of England, East India Company, and BBC (British Broad Casting Company) are some of the major examples of charted or royal charted companies.
State or the central government usually create such companies, it could be a public company or private company (fully owned by the government) depending upon the legislation. The exact legal English term for such entities is a statutory corporation. The purpose of such companies is to create employment opportunities and to serve people.
Commonwealth Bank of Australia, Airport Authority of India, Food Safety Authority of Ireland, Transport for London and Post Office Corporation are some of the examples of statutory companies.
As the name implies, such entities, organizations, and corporations have to be registered by the law, or the ruling authority of a country. The ruling authority could be SECP (security exchange commission), corporate ministry or some constitution act of a country. A company can’t operate its business operations without registration.
Google India Pvt. Limited, Walmart, State Grid, and Toyota are some of the major examples of registered companies.
Types of Companies based on Liability of Members
Different businesses have different levels of responsibilities and liabilities, some have less and the others have more liabilities. What it means that if a company runs into losses, then how it would be able to cover up the loss. There are three main types of companies in terms of liability of their members, here they are;
Unlimited companies are such organizations where the liability of stock and share isn’t limited, it many cost shareholders their assets, in case of liquidation of company or bankruptcy. If the company doesn’t pay debt to its creditors, then shareholders have to cover up the loss.
Companies Limited by Shares
Companies limited by shares can be public or private corporations, however, the liability of shareholders is limited to the share price only. If the law finds the company bankrupt, then shareholders don’t have to worry about covering up the loss of the company. Such companies end with ‘Pvt. Ltd.’
Companies Limited by Guarantee
Companies limited by guarantee aren’t public entities and they don’t advertise or issue their shares to the public. They could be profit-oriented or non-profit organizations. However, the liability of its members and stakeholders is limited to the pre-decided percentage of the amount they have to contribute to cover up the loss. It’s usually a group of people who establish a company limited by guarantee.
Types of Companies Based on Members
Private Companies (Private Limited Companies)
Private companies are for the private members only, where the stock of the company is offered to the limited private individuals. Unlisted and unquoted companies are some of the other names of private companies. The size of private companies is usually small, and they aren’t as big as public companies. Companies, sometimes, start as Private Corporations, later they become public because of acquiring more capital and expansion of their business.
Mars, John Lewis partnership, Virginia Atlantic, and Dell are some of the prominent private companies that are running their businesses worldwide.
Public Companies (Public Limited Companies)
Public companies are such entities where the shares and stock of the company is open for the public to trade. Unlike private companies, public companies give free access to their shares to ordinary people and the general public.
Different countries have different limits of members, for example, in the UK; a public company should have at least 2 shareholders and 2 directors, with a total share value of 50000 British pounds. Some countries have a minimum limit of seven or more shareholders; it may vary from country to country.
Any private firm can become a public company if it wants to raise some capital after fulfilling the basic legal requirements. Equity owner is the term used for the investors who buy the stock and shares of the public company. Proctor and Gamble Company, F 5 Network, and Google are very famous public companies.
One Person Company
As the name implies, OPC is comprised of one person and he doesn’t need shareholders and board of directors, as long as he has a minimum investment of 100,000 Indian Rupees. The good thing about OPC, you have freedom and independence like a sole proprietorship and limited liability like any of a public corporation.
OPC has its origin in India, where you have to fill certain requirements to establish OPC; like mentioning the name of a person who’ll handle the business operation after your death.
H-CARE Holistic Enterprise and ARADO Farms are some of the famous Indian one-person companies.
Types of Companies Based on Controls
Holding & Subsidiary Companies
Holding and subsidiary are two separate companies, where holding parent company manages the business operations of the other subsidiary company. Until subsidiary company becomes fully established, holding company controls over the entire selection and election process of the board of directors. Usually, a subsidiary company doesn’t have its shareholders; it’s the holding that holds all the shares.
Subsidiary companies could be profit-oriented or non-profit companies. Thomson and Thomson and The Global Tutor are few major holdings and subsidiary companies.
Association companies are such valuating entities where one organization holds a significant voting power over the other organization. It looks like a holding and subsidiary company where one organization managing the business operation of the other organization.
The difference here is that if one company holds the voting share ranging from 20 to 50%, then it’s an association company and it has the right not to merge the financial statement of its associates. If the voting percentage is more than 50%, then the company has to fuse the financial statement of its associates, and the associate company would consider the clients and financial statement as an asset.
Types of Companies Based on Stock Market
Listed companies are any of the public entities which issue a share of stock, and it allows its users to trade the stock and shares of the company over-the-counter or stock exchange market. If a company appears in the list of stock exchanges, then it would be listed company.
A public company has to achieve and maintain a certain size to become a listed company.
A company has to follow a certain protocol set by the government to become a public company. Different countries use different names, like, corporations is the name used for public companies (although corporations and public companies are completely different entities. In England, they say public limited companies.
Unlisted companies are those entities that do not appear in the list of stock exchange markets. The listing criteria of stock exchange vary from market to market; usually, it is based on the number of shareholders and the face value of shares. If a company meets the requirement of the stock exchange market, then it starts appearing on the list. If it doesn’t meet the protocol, then it doesn’t appear. Therefore, it’s called unlisted companies.
A public company meeting the criteria also has a choice not to appear in the list of the stock exchange market. Companies do it for several reasons like they don’t want public investors, or they don’t want to pay the listing cost of the stock exchange market, or they want a few big shareholders instead of small and many.
Other Popular Companies
If the state or the central government of a country owns 51% of the total share capital of a company, then they are partly central government companies. If the government is a holding company, then it also falls in the category of government companies.
If a company is registered in one country, but it’s doing business in the other country through an agent or electronically, then it would be a foreign company.
Non-government organizations or NGOs are such entities that are independent and free from any influence of a government. They usually perform social work and other humanitarian activities. NGOs usually depend on the funding to their operation and they prefer volunteers to help them to theirs. However, their activities are so diverse that they perform differently in different parts of the world. They are charitable organizations in some regions, and the other time they work as a lobby group like world economic forum.