Classification of Companies on the Basis of Incorporation
As an entrepreneur, you can set up your business in India with various corporate structures. These include single-owner businesses like Sole Proprietorships and One-Person Companies, Partnership businesses like Firms and LLPs, and multi-owner businesses like Companies. But not all of these businesses have their own identity.
Then how does a business receive its own identity? Let’s Understand!
Well, a business receives its own legal name and identity after they get incorporated under laws that regulate them. For instance, a Company is regulated under the all-encompassing Companies Act of 2013. So, it is this act under which it gets incorporated and receives a separate legal identity.
Incorporate your Company at your fingertips!
Company Incorporation under the Companies Act is extremely quick and easy as the entire process is 100% online. All the applicant company needs to do is visit the official website of the Ministry of Corporate Affairs and access the online form for company registration. Once, the form is accessed, you can fill in all the details online, and upload the individual files of the required documents. To sign the form, you can attach the Digital Signature of the company’s authorized representative and complete the process by paying the application fee via internet banking.
Can you incorporate all companies in the same way?
The basic process of company incorporation is mostly the same for all types of companies. What differs are the minimum requirements for such incorporation. So, the classification of companies on the basis of incorporation would include 3 types:
- A Private Company
- A Public Company
A Private Company:
Before we begin discussing Private companies, you must know that all types of companies transfer their ownership by issuing and selling their shares to interested investors. Now, a Private Company is one which issues such shares in a Private manner and sells them via Private Placement. You will not find the shares of a Private company listed on stock exchange platforms or being sold to the general public. To incorporate a Private Company, you need at least 2 shareholders as its co-owners, and 2 directors as the head of its management.
A Public Company:
Compared to a Private Company, a Public Company is suitable for incorporating large-scale businesses. Here, there is no restriction on the issue or sale of shares. The shares issued by a Public Company are listed on public platforms like the Stock exchange and can be easily sold or transferred to anyone among the general public. Since a Public Company can accommodate so many investors, the minimum requirements for its incorporation include at least 7 shareholders and 3 directors.
A One-Person Company:
A One-Person Company carries the same core features as a Private Company, meaning that its shares are also issued privately and sold via Private Placement. The only difference between the two is that a One-Person Company, as the name suggests cannot have more than one owner or shareholder, whereas a Private Company requires at least 2 shareholders to get incorporated.
Conclusion
Company classification in India on the basis of incorporation depends on its needs and suitabilities, especially with respect to its size, number of owners, target consumers, growth potential, and vision of expansion. Such a choice should be made only after an in-depth understanding and analysis of all these factors so that there are no regrets later. Remember that company incorporation is the very foundation of a company’s establishment, and if you do it wrongly, you can face innumerable challenges in running your company smoothly throughout its life span.