Describe the different types of companies in finance.

Companies in finance are classified as follows −

  • Based on liabilities − Company limited by shares, company limited by guarantee, unlimited companies.

  • Based on members − One-person company, private companies, and public companies.

  • Based on control − Holding and subsidiary companies, associate companies.

Based on liabilities

  • Companies limited by shares − Shareholders of company will not be paid completely to their shares, therefore, company’s liability is limited. While winding up company will be liable until they pay total amount to their shareholders.

  • Companies limited by guarantee − this, company will be liable only to amount which is guaranteed.

  • Unlimited companies − As name suggests, it will have no limits to their liabilities, they can use all their assets to pay their shareholders while winding up.

Companies based on members −

  • One Person Company − These kinds of companies will have only one person as their sole shareholder. They don’t need to have any minimum share capital.

  • Private companies − They have more than one member (minimum 2), they can choose a person who is working at present to the person who has worked in the past. In this, free transferability of shares is restricted.

  • Public companies − In this, minimum members will be 7 and maximum limit is unlimited. Unlike private companies, there are no restriction to their shares to the others.

Companies based on control or holding

  • Holding and subsidiary companies − In these companies, share of one company can be fully or partly held by another company. That company may be parent company. The company whose shares are owned/held by parent company will become subsidiary company. Parent company can have control on the subsidiary company.

  • Associate companies − In this, other companies should own at least 20% shares of the associate company. They can also exist in joint venture agreements.

Other types of companies

  • Government companies − In this, government will hold more 50% of shares. That government may be central or state or combined or one or more state governments.

  • Foreign companies − Companies which are registered in other countries, they can do business by themselves or with any other company.

  • Charitable companies − These are also called charitable companies which are registered under section 8. Their main objective is for charitable purpose.

  • Dormant companies − They don’t have any major transactions. They are formed for future projects.

  • Nidhi companies − They will receive deposits from members and use for their own cause.

  • Public finance institutions − They are government companies who conducts public financing.

Updated on: 12-Aug-2020


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