Joint Stock Companies can be classified on the basis of corporation, nature of liability, extent of public interest, ownership, nationality etc. let us examine briefly the different kinds of companies.
I. On the Basis of Incorporation
Any company is to be incorporated under an Act. The provision of the particular Act under which it is established governs it working. Companies of this kind are of three types. They are;
a. Statutory Companies
These are the companies which are created special act of the Parliament or State Legislature, e.g., the Reserve Bank of India, the State bank of India, the Life Insurance Corporation, etc. these are mostly concerned with public utilities, e.g., railways, tramways, electricity companies and enterprise of national importance.
b. Registered Companies
Companies which are registered under the Companies Act, 1956, or were registered under any of the earlier companies Acts are called registered companies. A vast majority of companies we come across belong to this category. Tata Motors Limited, Reliance Telecommunication Limited, EID Parry Limited, etc belong to this category.
c. Chartered Companies
Companies established as a result of a charter granted by the King or Queen of a country is known as chartered companies. The charter issued, governs their functioning. In other words, The Crown, in the exercise of the royal prorogated has power to create a corporation by the grant of a charter to persons assenting to be incorporated. Example – Bank of England, East India Company, etc.
II. On the Basis of Liability
On the basis of the extent of liabilities of the shareholders such companies are divided into three categories.
a. Companies Limited by Share
Where the liability of the members of a company is limited to the amount unpaid on the shares such a company is known as a company limited by shares. If the shares are fully paid, the liability of the members holding such shares is nil.
b. Companies Limited by Guarantee
In a company limited by guarantee the liability of a shareholder is limited to the amount he has voluntarily undertake to contribute to meet any deficiency at the time of its winding up. Such a company may or may not have a share capital. If it has a share capital a member’s liability is limited to the amount remaining unpaid on his share plus the amount guaranteed by him. This type of company is started with the object of promoting science, arts, sports, charity, etc. it is clear that its objective is not profit earning. It gets subscription from its members and donations and endowments from philanthropists.
c. Unlimited Liability
A company without limited liability is known as an unlimited liability. In case of such a company, every member is liable for the debts of the company, as in an ordinary partnership, is proportion to his interest in the company. In other words, their liability extends to their private properties also in the event of winding up. Unlimited companies are almost non- existent.
III. On the Basis of Nationality
They are of two types’ viz., domestic companies and foreign companies.
a. Domestic Company
Companies registered under the Companies Act, 1956, or under earlier Acts are considered domestic companies.
b. Foreign Company
Foreign company means a company incorporated outside India but having a place of business of India. It has to furnish to the authorities the full address of the registered or principal office of the company or a list of its directors or names and addresses of the residents in India authorized to receive notices, documents, etc.
IV. On the Basis of Number of Members
a. Private Company
A private company means a company which by its articles
i. restricts the rights to transfer its shares
ii. Limits the number of its members minimum 2 and maximum number of members fifty (excluding the employees)
iii. Prohibits any invitation to the public to subscribe for any shares or debentures of the company. The name of the company must end with the words ‘private limited’.
b. Public Company
The public is invited to subscribe to the shares of the company usually by issuing a prospectus. Shares are easily transferable. A public company must have at least 7 persons to form and no maximum limit as to its number of shareholders or members. The name must end with the word ‘limited’.
V. On the Basis of Control / Ownership
a. Holding Company and Subsidiary Company
A company is known as the holding company of another company if it has control over that other company. A company becomes a holding company of another
i) if it can appoint or remove all or majority of the directors of the latter company or
ii) if it holds more than 50% of the equity share capital of the latter or
iii) if it can exercise more than 50% of the total voting power of the latter.
A company is known as a Subsidiary of another company when control is exercised by the latter (called holding company). Over the former called a subsidiary company.
b. Government Companies
A Government company is one in which not less than 51% of the paid up capital is held by the Central Government or by any one or more State Governments or partly by the Central Governments and partly by one or more State Governments. Examples: Bharath Heavy Electricals Limited, Steel Authority of India Limited, etc.
A subsidiary of a Government company is also treated as a Government company. A Government company also enjoys a separate corporate existence. It should not be identified with the Government and its employees are not Government employees.
c. One man company
These are companies in which one man holds virtually the whole of the share capital with a few extra members holding the remainder who may be his relations or nominees.
