Types of Companies in Accounting

There are five types of companies in accounting and each one has different categories. Now we explain all separately under the following:

1. On the basis of incorporation

a) Statutory company

b) Registered Company

2. On the basis of the number of members

a) Private Company

b) Public Company

c) One-person company

3. On the basis of the liability of members

a) Company limited by shares

b) Company limited by guarantee

c) Unlimited liability company

4. On the basis of control

a) Holding company

b) Subsidiary company

5. Other Types

a) Government of company

b) Foreign company

c) Dormant Company

d) Listed company

e) Small Company

f) Associate Company

g) Company not for profit

Now, We explain the Types of Companies in Accounting is under below:- 

1. On the basis of incorporation

a) Statutory company:

These companies are incorporated by a legislative act by the central or state legislative. e.g. Reserve Bank of India, depository financial institution of India, unit investment trust of India, Life Insurance Corporation, etc.

b) Registered company:

These companies are incorporated under the Companies Act 2013 or any previous company law.

2. On the basis of the number of members

a) Private company:

Private company means a company having a minimum paid-up capital as may be prescribed and which by its Articles – (Section 2(68))

i) Restrict the right of members to transfer their shares if any.
ii) Restrict the number of its members up to 200.
iii) Prohibits any invitation to the public to subscribe to any securities or deposits of the company.

All the above-said conditions should be fulfilled for a company to be called a private company. If any one of the conditions is not fulfilled by the company, it shall be considered a public company.

It must add the words ‘Private Limited’ at the end of its name. A private company may be a company limited by shares a company limited by guarantee or an unlimited company.

b) Public company:

According to Section 2(71), a public company is a corporation that is not a private company. A public company –

1) Has no restriction on the transfer of its shares.
2) The minimum number of members should be seven.
3) has got to have a minimum paid-up share capital as could also be prescribed by its Articles.
4) Does not prohibit any invitation or acceptance of deposits from the public.

c) One-person company:

According to Section 2(62), a one-person company may be a company that has only one person as a member. It is a private Ltd. and it’s to satisfy and suit all the formalities of the private company unless otherwise laid out in the Act or rules. The concept of a 1 Person Company was introduced through the Businesses Act 2013.

It is operated by a single person who has Limited Liability. It is a better form of business organization than the sole proprietorship because the liabilities of the member are limited to the extent of his capital within the company. One Person Company can have one or more directors. There is no need to hold an Annual General Meeting.

3. On the basis of liability of members

a) Company limited by shares:

Section 2(22): These sorts of companies have a share capital and therefore the liability of every member is restricted to the unpaid part of the face value of shares purchased by the member. During the existence of the company or in the event of winding up, a member can be called upon to pay the unpaid remaining amount on the shares purchased by him/her.

A company limited by shares may be a public company or a private company. These are the most popular types of companies.

b) Company limited by guarantee:

Section 2(21): These types of companies may or may not have a share capital. Each member promises to pay a fixed sum of money specified in the Memorandum in the event of liquidation of the company for the payment of the debts and liabilities of the company.
Generally, such companies are not profit-making companies because they are formed for the purpose of promotion of art, science, culture, charity, sports, or some other similar purpose.

c) Unlimited liability company:

Section 2(92): a corporation not having any limit on the liability of its members is termed as a vast company. The members are fully susceptible to covering the debts of the corporation.
Unlimited companies are often either personal or a public company or a 1 person private company.

4. On the basis of control

a) Holding company:

Section 2(46) A company may be a company that holds quite one-half the entire share capital of another company or has powers to appoint or remove all or a majority of directors of another company.

b) Subsidiary company:

Section 2(87) A subsidiary is simply the other of a company. It is a company that is controlled by a Holding company. Such control is feasible because the company purchases quite one-half the share capital of the subsidiary or has powers to appoint or remove all or a majority of its directors.

5. Other Types

a) Government of the company:

Section 2(45): Government company means any company in which not less than 51% of the paid-up share capital is held by

1) the central government or
2) State government or governments or
3) Partly by Central Government and partly by one or more State Governments or
4) Subsidiary company of a government company.
A Government Company may be a private company or a public company. In fact, it is a company registered and incorporated under the Companies Act 2013. e.g. Hindustan Machine Tools Limited, Steel Authority of India Limited., etc.

b) Foreign company:

Section 2(42): Foreign company means a corporation incorporated outside India, but having an area of business in India. e.g. Nestle India Limited, Bata India Limited, Whirlpool Corporation, etc.

c) Dormant company:

If a company is registered for a future project or has not made any significant accounting transactions in the last two years or has not filed financial statements or annual returns in the last two years after making an application u/s 455 is often called a Dormant Company.

d) Listed company:

Section 2(52) Listed company means an organization that has any of its securities listed on any recognized stock exchange. A public limited company may be a listed company or an unlisted company. The listed companies will also have to follow SEBI’s guidelines and therefore the provisions of the Businesses Act.

e) Small company:

As per Section 2(85) of the Act, a small company means a corporation other than a public company –
1) Paid-up share capital of which doesn’t exceed` 50 lakh or such higher amount as may be prescribed or
2) Turnover of which as per its last profit and loss account doesn’t exceed ` 2 crores or such higher amount as could also be prescribed. A private company, a Person Company, and a company other than a public company can be a small company.

f) Associate company:

Section 2(6) An Associate Company is one over which another company exercises a significant degree of control which is less than the degree of control exercised over a subsidiary company.

Associate company in regard to another company means an organization during which that other company features a significant influence, but which isn’t a subsidiary. For the purpose of this clause ‘significant influence’ means control of at least 20% of total capital or of business decisions under an agreement.

g) Company not for profit:

Under section 8 such companies are registered.

Types of Companies in Accounting

Types of Companies in Accounting state the categories of business that have been regulated by our business or organization and we follow the same as applicable. It helps the understanding of all applicability of regulation acts in our business or organization.


One response to “Types of Companies in Accounting”

  1. […] There are five types of companies in accounting, are financial instruments like shares, bonds, debentures etc. issued by the company.  […]

Leave a Reply