Introduction
Are you in the preliminary phases of creating a company, or ready to register your firm? Or, looking after the finances of a firm already in existence? It is necessary to know with precision what designs of companies one runs. Each type of company comes with a different legal structure, ownership model, and financial responsibility. EnKash caters to all sorts of companies-from startups and MSMEs to large enterprises-empowering them in capital management and spend solutions. This blog intends to elucidate what a company really is, the legal forms of a company, its classification under Indian Law, and how the financial planning of any particular company is affected by the type of company that it is.
What is a Company?
A company, as per Section 2(20) of the Companies Act, 2013, means a company incorporated under this Act or under any previous company law. Now, under Indian law, companies are furthest regulated under the Companies Act, 2013, in respect of incorporation, functioning, compliance, and dissolution. Upon entering and becoming a company in a sense, a business obtains a separate legal identity. In simple terms, it is treated as a person before the law and can have assets, enter into agreements, incur liabilities, and be sued independently of its owners. A registered company refers to a business entity that is incorporated and duly recognized by the Ministry of Corporate Affairs (MCA) in India.
What is the Definition of a company?
Popular definitions of a company
Legal Definition (Companies Act, 2013 – India)
“A company means a company incorporated under this Act or under any previous company law.”
This is a statutory definition, meaning it’s based on how the law recognizes a company as an incorporated legal entity, separate from its owners.
L.H. Haney’s Definition
“A company is an artificial person created by law, having a separate entity, with a perpetual succession and a common seal.”
This is a classic corporate law definition, widely cited in commerce and law textbooks.
Features of the Company
The main features that define a company in India are listed below:
1. Separate Legal Existence
A registered company has a person in law. Registered companies have a separate legal entity distinct from their shareholders and directors and can transact business in their own name. They can sue and be sued, hold property, or transact in their name.
2. Limited Liability
One of the greatest benefits of forming a company is the limitation on liability arrangement wherein shareholders are only liable to the extent of the amount, if any, unpaid on their shares. Their assets are protected from being reached for the debts or legal claims against the company.
3. Perpetual Succession
A company exists perpetually, unaffected by changes such as the resignation, insolvency, or death of its shareholders. Hence, continuity is maintained, which benefits the long-term planning of business operations.
4. Transferability of Shares
Shifting shares around among investors is possible in public limited companies. The whole idea gives liquidity and grants ease with shareholder entry or exit without disruption in business activities.
5. Regulatory Compliance
Companies have to comply with certain regulations and maintain a certain level of transparency by filing annual returns, conducting audits and board meetings, and paying taxes on revenue, etc. This might take effort in itself, but it surely acts in favor of enhancing credibility and attracting investors.
Understanding these features enables one to tell the difference between a company and other forms, such as a sole proprietorship or a partnership; these usually lack personal liability, continuity of business, and formal structure.
Forms of Companies: An Overview
In India, businesses can get registered under multiple forms of company structures, with the choice thereof influenced by considerations of ownership, liability, and compliance. With all these varieties of companies being suited for different purposes, a given company tries to align itself with its business strategy. Below is a simple overview of the most common company structures in India.
Private Limited Company
This is the most widely used structure for small- and medium-sized businesses and start-ups. A private limited company must have a minimum of two members and can have a maximum of 200 members, excluding current and former employees. Limited liability is a big benefit. It limits the liability of its members and thereby protects the personal assets of shareholders. It also allows the company to raise funds privately from identified investors. However, shares of a private limited company cannot be publicly offered for sale, whereas ownership transfer is encumbered by restrictions. This structure will attract those businesses that are growing and intend to attract external investment, but want to keep control.
Public Limited Company
Such companies are conceived as those that want to raise funds from the public. Ltd must have a minimum of seven shareholders; there is no maximum number of members. Public companies may or may not be listed on stock exchanges. Listed public companies can raise funds from the public through IPOs. With greater access to capital comes stricter compliance and reporting requirements. For enterprises that intend to scale aggressively and establish public trust, this suits them well.
One Person Company
An OPC allows a single entrepreneur (resident or NRI) to start a company with limited liability. Recent amendments have made conversion to other company forms easier. It provides for a separate legal entity and offers all the benefits of a sole proprietorship and a corporate structure. OPCs enjoy fewer compliance requirements and are therefore easier to run. These types of companies are ideally suited for freelancers, consultants, or sole proprietors who want incorporation protection without necessarily having to deal with a multitude of shareholders.
Limited Liability Partnership (LLP)
An LLP combines the flexibility of a partnership with the protection of limited liability. LLPs are widely used by professional service providers such as consultants, lawyers, and accountants, but are also increasingly adopted by startups and other businesses seeking operational flexibility with liability protection. There is no minimum capital requirement for LLPs, similar to companies, after the 2015 amendment.
Section 8 Company
It is a non-profit entity formed for the promotion of education, charity, art, or any social objective. Any profits arising should be used for the development of the activities for which the company was incorporated. These companies may enjoy tax exemptions if they obtain 12A and 80G registrations under the Income Tax Act. Section 8 Companies are commonly chosen by NGOs and non-profits. Companies may also collaborate with Section 8 entities to fulfill their CSR obligations.
Structures, with the choice thereof influenced by considerations of ownership, liability, and compliance. With all these varieties of companies being suited for different purposes, a given company tries to align itself with its business strategy. Below is a simple overview of the most common company structures in India.
Classification of Companies Under the Companies Act, 2013
The Companies Act, 2013, has given a complete framework for incorporating and running businesses in India. One major aspect of it is the classification of companies depending upon legal structure, purpose, liability, control, and ownership. Familiarity with such classifications is thus considered necessary for selecting the business type and working with government regulations.
Based on the Incorporation
From the point of view of incorporation, the companies are segregated. Statutory companies may be defined as those formed by a special Act of Parliament or of the Legislature of a State. Examples include the State Bank of India (SBI) and Life Insurance Corporation (LIC). Registered companies or any other names, just companies, are companies formed under the Companies Act, 2013. These companies fall under the administrative framework of the Ministry of Corporate Affairs. Among such companies are private limited companies, public limited companies, and one-person companies, which vary in shareholding and structure.
Based on Liability
The categorisation describes the extent to which the shareholders stand to lose financially. Normally, companies are limited by shares, so the shareholders can only be made to pay any amount unpaid on their shares. Companies limited by guarantee are generally formed for charitable purposes, wherein members undertake to pay a certain amount in the event of a winding up of the company. Although rare, in an unlimited company, members bear unlimited personal liability, hence posing attractiveness to modern-day businessmen.
Based on the Number of Members
Firms are also classified by the Companies Act by membership. A private company must have a minimum of 2 members or a maximum of 200 members. Private companies cannot offer their shares to the public, which is why they are often referred to as closely held or ‘closely held companies. Public companies have to have at least 7 members, with no upper limit on membership. The public company can raise securities through the public. An individual, on the other hand, can form a legally limited entity and a compensated structure via a One-Person Company (OPC), thus ideal for sole traders.
Based on Control
Companies could be classified according to the degree of control that one entity has over the other. A holding company controls or has more than 50 percent of shares or voting rights in another company. The entity under control is called a subsidiary company. An associate company is one in which another company exercises significant influence, defined as at least 20% of voting power or participation in policy decisions, without having control or majority ownership. This classification is very important in the setup of business groups or corporate families where financial decisions impact more than one affiliate.
Based on Purpose
Based on objects, businesses are also structured. Companies intending to make profits generate revenue for shareholder value. The majority of the Indian corporate sector is of this kind. However, not-for-profit companies or Section 8 companies are formed for the promotion of social, educational, or charitable objectives. Such companies are not allowed to share profits with their members, and all money made has to be used towards the objective for which it was incorporated. They enjoy various benefits such as exemption from taxes and other CSR opportunities.
We at EnKash work with companies under all legal types to offer capital and spend management solutions. Compliance tracking, multi-entity fund control, and completely automated disbursals- our platform gives businesses that edge of managing finances better, at any scale.
Types of Companies Based on Ownership Structure
Besides classifications under corporate law, companies can be categorized based on ownership structure. Ownership affects governance, ability to raise funds, control, and, finally, strategic decision-making. Given below is how Indian companies are structured based on ownership:
Government Companies
A company is a government company only when 51% or more of its paid-up share capital is owned by the Central Government or State Government, or partly by both. This includes subsidiaries of such companies. Typical examples are ONGC, GAIL, and SAIL. The entities may have commercial interests but also align with national interests, such as those of infrastructure, energy, and development. These companies also follow normal corporate governance practices, but with government audits and scrutiny.
Private Companies
Private companies are those owned by individuals or families, or private organizations. Shares of private companies are, therefore, not offered to the general public, and ownership is strictly limited. These companies enjoy a high degree of flexibility in their administrative structure and have fewer compliance requirements as compared to public companies. Such companies are often used as a structure for startups and family businesses. Through vendor payment automation, smart credit lines, and spend analytics, private companies can boost their operational efficiency and visibility with more agility.
Public Companies
A public company can list its shares on a stock exchange and raise money from the general public. The ownership is scattered across a wide base of retail investors and many institutional investors. These companies are subject to stringent regulations given to them by the SEBI and are meant to be highly transparent, with periodic financial disclosures. With their big, decentralized budgets, the public companies stand seriously favored to tap into EnKash’s departmental spend control, compliance tracking, and complex reporting dashboards.
Joint Venture Companies
Joint venture companies come into being when two or more companies, whether Indian or foreign, enter an arrangement for the pursuit of a common business objective. These ventures are commonly used for market entry, technology sharing, or combining operational capabilities. Ownership is shared based on mutual agreements, and governance is jointly executed. EnKash supports such complex arrangements by enabling multi-entity financial control, real-time tracking, and customizable financial workflows.
Different Types of Firms in India: From Startups to Corporations
India thus offers a wide variety of firm structures in its business ecosystem to meet different operational, ownership, and regulatory requirements. While companies ltd. under the Companies Act 2013 have been given much emphasis in discourse, there exist many different types of firms, all equally valid in the entrepreneurial journey. From the informal to the fully regulated form of public agencies, knowing the different types of firms would be the key to selecting the most suitable for your particular aims.
Sole Proprietorship
Practically the simplest business structure that exists in India. It is owned and managed by a single individual and requires no formal registration under the Companies Act. The business and its owner are actually viewed as a single entity in law; thus, the person is bound personally to answer to all the debts and obligations. Ideal for small traders, freelancers, and unincorporated consultants because of very less compliance and operational costs. The big demerits are, absence of limited liability and growth to a certain level.
Partnership Firms
The partnership firm is established when two or more persons agree to carry on business to share profits and losses. These firms are governed by the Indian Partnership Act, 1932. Registration is not compulsory, but it is recommended to avail of legal benefits. Under the common law of partnership, partners have unlimited liability and are seniors to business debts. These types of structures are good for small and medium-sized enterprises that operate on mutual trust and ownership, but are risky if the protection of limited liability is not given.
Limited Liability Partnership (LLP)
Limited Liability Partnerships act as an intermediate entity between partnerships and companies. An LLP is created under the Limited Liability Partnership Act, 2008. Hence, LLPs provide the partners with limited liability protection such that the personal assets of the partners cannot be used to offset the losses of the LLP. This type of formation combines the operational flexibility of a partnership with the financial security of a company. LLPs are getting more and more popular among professionals, service providers, and co-founded startups. It has fewer compliance requirements than a private limited company and is easier to manage for firms hungry for moderate growth.
Startups
In India, startups may choose from various forms of business organization based on their funding model, growth paths, and investor expectations. Mostly, startups take the route of a private limited company as a model for attracting venture capital and issuing equity. Some choose LLP or OPC, however, if they want more control and less paperwork. Through the Startup India initiative, the Indian government provides regulatory and tax benefits to recognized startups, regardless of the form they adopt. Being well-informed about the advantages and disadvantages of each structure helps scale effectively while at the same time handling compliance and operational overhead.
Joint Stock Company
A joint stock company is a more advanced form of any business entity, where capital is divided into shares and owned by shareholders. Such companies may be private or public. Public joint-stock companies are those whose shares are listed on a stock exchange and are thus open to purchase by any member of the general public. They are governed by the Companies Act, 2013, and regulated by SEBI. Joint stock companies, being suitable for large-scale operations, can enable huge capital formation and provide a clear segregative wall between ownership and management. However, their entire work has to be transparent, duly subjected to audits, and follow compliance frameworks.
Understanding the different types of firms is crucial because they vary in terms of legal, financial, and tax implications. From small business owners and startup founders to well-experienced entrepreneurs, linking one’s structure to operational goals and financial strength is a primary step to long-term success. In such a way, the correct form chosen will also imply how operations raise capital, take risks, and expand.
Why Knowing Your Company Type Matters for Financial Planning
The company or firm you carry on isn’t just a legal notion-it affects how you manage your finances, raise capital, and plan for its future. Your entity is crucial for taxation, what sort of financial reporting one has to maintain, the degree of liability that one has to bear, and how flexible one wants to be concerning their operations.
Affects Taxation and Compliance
Each form of business has a different style of tax. Sole proprietors and partnerships are taxed as individuals, whereas a private entity is taxed. Ltd. Companies and LLPs are taxed at corporate rates. LLPs have fewer compliance requirements compared to private limited companies, making them easier to manage for certain types of businesses. Public companies come under the MCA for incorporation and company law compliance, while listed companies also fall under SEBI regulations for securities and listing. Picking the correct company type can optimize tax liabilities and lessen the burden of compliance. EnKash helps you do exactly that through automated expense categorization, digital audit trails, and real-time visibility into all transactions.
Determines Capital Management and Access to Credit
A private limited company and a public company often enjoy better positioning for accepting loans, receiving investment, and issuing equity. Conversely, the OPCs and proprietorship may have to live on internal funds or short-term credit lines. EnKash supports all types of businesses via customized credit tools, including prepaid cards, vendor financing, and smart capital lines, to be shaped around your cash flow and creditworthiness.
Expense Tracking and Departmental Oversight
Financial planning must take into account huge divisions, teams, and projects in the case of larger organizations like public companies or joint ventures. This certainly requires classifying expenses and capital budgeting. EnKash supports departmental expense monitoring, approval hierarchies, and budgeting with great granularity. Our platform aids in automating payments and reimbursements and tracking all expenses via effortless dashboards.
Simplifies Vendor Payments and Capital Expenditures
Small payments streamline vendor relations and cash leaks, from LLPs to OPCs. With EnKash, vendors are managed with automated vendor payments, invoice reconciliation, and spend insights per category. Capital expenditure planning and control can be very valuable for any business, from a single-person company to a fast-growing startup.
Supports Growth and Strategic Planning
Finally, knowing your business type will go a long way to building your financial plan according to your business goals. If you are scaling locally, entering new markets, or prepping for IPO, EnKash will keep your financial operation agile, compliant, and ready to grow. We enable businesses to make smooth transitions from one stage to another through real-time tracking, visibility of spend, and credit solutions harnessed together.
Conclusion
Choosing to incorporate a company is thus an essential decision. Regulation of the mode of operation, raising capital, liability management, and ensuring compliance are determined by the structure of a business, whether a private limited company, an LLP, a startup, or a joint stock company. EnKash goes beyond just payments and credit; we also support your business journey with comprehensive financial management tools. EnKash keeps your money on track for value creation and is valued all the time.
