Businesses are usually started by forming some kind of Business entity, which are generally any type of Company. We have divided the types of companies on their nature of formation / incorporation, liability and control.
Formation / incorporation
On the basis of formation or incorporation the companies can be divided into the following types:
A chartered company is incorporated under a special charter or proclamation issued by the head of state.
A statutory company is formed or incorporated by a special act of parliament. Statutory companies do not require any Memorandum or Articles of Association as their activities are governed by their respective acts.
The companies which are formed by registration under the Company Act are called Registered Companies. There are two common types of registered companies; Private Companies and Public Companies.
A private company can be defined as a company whose Memorandum of Association restricts the right of its members to transfer shares, has a limited number of members and does not invite the public to subscribe its shares or debentures.
While, a Registered Company that is not Private is called a Public Company. To register a public company, a minimum number of seven persons are needed. Although, it can have a maximum number of members to the limit of its registered capital. As the name suggests, a public company can invite the public to purchase its shares and debentures. There is also no restriction on issue or transfer of shares.
On the basis of liability the companies can be divided into the following types:
There are two types of limited liability companies; i.e. Limited by Shares and Limited by Guarantee.
In a liability limited by shares the company’s capital is divided into shares and liability of shareholders (members) is limited to the extent of face value of shares held by them.
While, in a company whose liability is limited by guarantee; the shareholders promise to pay a fixed amount to meet the liabilities of the company in case of liquidation.
In the cases of partnerships or sole traders the company has no limit on the liability of its members and if the company goes into liquidation, the members can be called upon to pay an unlimited amount even from their private properties to meet the claim of the creditors.
Limited Liability Company (LLC)
An LLC is a hybrid legal entity with characteristics of both a corporation and a partnership or sole proprietorship. It is a US-specific form of private limited company. The members of the company are not liable for the company’s debts or liabilities. According to some survey companies, LLC is the most famous type of business structure in the United States.
Following are the types of companies on the basis of Control:
A holding company is a company that owns all or majority of other companies’ share capital to have a controlling interest. The common purpose of these type companies is to form a corporate group.
A subsidiary company (or daughter company) is owned or controlled by a holding company (or parent company). This can be any company, corporation or a limited liability company.