Business Entities

Limited Companies

The Companies Act, 2013 broadly recognizes three types of companies:

  • Public Limited Company
  • Private Limited Company
  • One Person Company

Private Limited Company6

A private company is one that restricts (by its Articles of Association):

  • The rights of its shareholders to transfer shares
  • The number of shareholders (excluding present- and past-employee shareholders) to 200
  • The company from making an invitation to the public to subscribe to any shares or debentures of the company
  • It requires a minimum of two shareholders to form a private limited company

The name of a private company carries the suffix ‘Private Limited’

Public Limited Company

A public company is a company, which is not a private company7. The above-mentioned restrictions are applicable to private companies but do not apply to public companies. A minimum of seven shareholders is required to form a public company.

Also, a private company that is a subsidiary of a public company is defined as a public company. The name of a public company carries the suffix ‘Limited’ (Ltd).

Under the Companies Act, 2013, a private limited company enjoys certain privileges and exemptions from various provisions of the Act, unlike a public company, which is subject to greater scrutiny, transparency, and compliance regulations. Furthermore, a public company (which is listed on a stock exchange in India) is also regulated by the Securities and Exchange Board of India (SEBI).

One Person Company

A ‘One Person Company’ is a concept introduced by the Companies Act, 2013. As the name suggests, it is formed with just one person as its member. Since such companies have only one member, they enjoy certain privileges and exemptions. Such a company can be formed by a person who is a resident and citizen of India; a foreign national is not eligible to incorporate a One Person Company under the existing regulations.

A company incorporated under the provisions of the Companies Act, 2013, can undertake only those business activities that are specified in its ‘Main Objects’ under its Memorandum of Association. The proposed business activities to be carried out by an Indian entity owned by non-residents shall be subject to the FDI policy of the Indian government as amended from time to time.

You may also wish to refer to Chapter 5: Company formation and Administration, and Chapter 7: Company Taxation to know more about the rules and regulations pertaining to each type of company.

  • 6. Section 2(68) of the Companies Act, 2013, http://ebook.mca.gov.in/default.aspx , accessed 20 September 2020
  • 7. Section 2(71) of the Companies Act, 2013, http://ebook.mca.gov.in/default.aspx, accessed 20 September 2020
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Rajiv Rajendran
Executive Director
Corporate Services

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