Business Laws · The Companies Act, 2013

Kinds of Companies under the Companies Act, 2013

Updated 1 October 2026 · Fact-checked

Kinds of companies means classifying companies under the Companies Act, 2013 by incorporation, liability, number of members, control and ownership. To solve questions, identify the basis of classification, name the type, state its defining features with the legal test, and apply them to the facts given in the question.

Understand Kinds of Companies

A company is a separate legal person created by law. But companies differ a lot. A small family business and a listed giant do not need the same rules. So the Act groups companies into kinds, and each kind has its own features and compliance burden.

There are five common bases of classification. Incorporation: statutory companies (created by a special Act of Parliament), and registered companies (under the Companies Act). Liability: limited by shares, limited by guarantee, and unlimited. Number of members and transferability: private, public, and One Person Company (OPC). Control: holding, subsidiary and associate companies. Ownership: government company and foreign company.

Then there are special types. A small company is a company other than a public company, with paid-up share capital not exceeding ₹4 crore and turnover not exceeding ₹40 crore (as per the current limits). A holding company or a subsidiary company is excluded. A Section 8 company is excluded. A company or body corporate governed by a special Act is also excluded. A dormant company is registered for a future project or to hold an asset or intellectual property, and has no significant accounting transaction. A Section 8 company is formed for promoting charitable objects such as commerce, art, science, sports, education, research, social welfare, religion, environment protection. It applies its profits to those objects and does not pay dividends to members.

The private vs public difference is a favourite. A private company restricts the right to transfer shares by its articles, and prohibits invitation to the public to subscribe to its securities. A public company is one that is not a private company. A private company needs a minimum of 2 members and a public company needs a minimum of 7. The maximum for a private company is 200 members. Joint holders are counted as a single member. Employee members are excluded from the count. So are former employees who became members while employed and continue as members after the employment ends. A public company has no maximum.

Finally, learn the OPC. It is a company with only one person as a member. It must be a private company. Only a natural person who is an Indian citizen can form it, whether resident in India or not (so an NRI who is an Indian citizen can also form one). A company or other body corporate cannot form an OPC. One person cannot be the sole member of more than one OPC. The memorandum must name a nominee who takes over if the member dies or becomes incapable of contracting.

Key rules to remember

Minimum members: Private company = 2; Public company = 7; OPC = 1; Private company maximum is 200 members (employee members, and former employees who became members while employed and remain members, are not counted; joint holders count as one). Public company has no maximum.
Minimum directors: Private company = 2; Public company = 3; OPC = 1; An OPC must have at least one director. Remember these three numbers together.
Private company test: Private company = restricts share transfer + prohibits public invitation to subscribe to securities (+ limits members to 200); Public company is defined negatively: a company that is not a private company.
Liability classification: Limited by shares | Limited by guarantee | Unlimited; Shares: liability limited to unpaid amount on shares. Guarantee: members guarantee a fixed amount if wound up. Unlimited: no limit on members' liability.
Control classification: Holding company controls Subsidiary; Associate = significant influence (not a subsidiary); A subsidiary is one where the holding company controls the composition of the board, or exercises or controls more than half of the total voting power. Significant influence means control of at least 20% of total voting power, or control of or participation in business decisions under an agreement. A joint venture company is covered in the associate definition.
Section 8 company: Charitable object + profits applied to objects + no dividend to members; May be licensed by the Central Government. Name usually ends with Foundation, Forum, Association, Federation, Chamber, Confederation or similar.
OPC eligibility: Natural person + Indian citizen (resident in India or NRI) + nominee named in memorandum; Since the 2021 amendment, an Indian citizen who is an NRI can also form an OPC. 'Resident in India' means staying in India for at least 120 days in the previous financial year; the earlier test was 182 days. A company or other body corporate cannot form an OPC.

How to solve Kinds of Companies questions

Use this method for both theory questions and short fact-based questions on kinds of companies.

1Read the question and find the basis of classification: incorporation, liability, members, control or ownership.
2Name the correct kind of company using the exact legal term.
3Write its definition in one or two lines, in plain words.
4List the key features that apply: members, directors, share transfer, liability, name, special conditions.
5For a comparison question, set out the points one by one: members, directors, share transfer, public invitation.
6For a fact-based question, apply each feature to the given facts and say whether it is met.
7State a clear conclusion in one line, such as 'Hence, X is a private company'.
8Add one short example or exception if time permits.

Quickest way: Definition-features-conclusion in 5 lines

When to use it: Use this when you have only 5 to 6 minutes for a 5-mark question and must be complete without writing too much.

Line 1: name the kind and the section or basis of classification, only if you are sure.
Line 2: give the definition in your own words.
Lines 3 and 4: write the two or three features the question tests (for example 2 to 200 members, no public invitation).
Line 5: apply to the facts and conclude.
For comparisons, write numbered points side by side, and use a memory chain: Members, Directors, Transfer, Public invitation.
Use the mnemonic 2-7-1 for members and 2-3-1 for directors (private, public, OPC).

Common mistakes in Kinds of Companies

Saying a private company can have unlimited members.
Students remember the minimum of 2 and forget the upper limit.
Fix: Write 'minimum 2 and maximum 200 members' every time, with the special treatment of employee members, former employee members and joint holders.
Treating a public company as one that invites the public to subscribe.
The everyday meaning of public is mixed up with the legal one.
Fix: Define it as a company that is not a private company. Public invitation is permitted, not compulsory.
Saying an OPC can be formed by any person, including a company or other body corporate.
Students read 'one person' without noticing the eligibility condition.
Fix: State that only a natural person who is an Indian citizen can form an OPC, whether resident in India or not. A company or other body corporate cannot.
Forgetting the nominee in an OPC.
The nominee feels like a small detail.
Fix: Always mention that the memorandum names a nominee who takes the place of the member on death or incapacity.
Saying a Section 8 company can pay dividends to members.
Students treat it like any other company limited by shares.
Fix: Write that profits are applied only to promote the objects and no dividend is paid to members.
Mixing up subsidiary and associate companies.
Both involve one company influencing another.
Fix: Subsidiary means control over the composition of the board, or control of more than half of the total voting power. Associate means significant influence (at least 20% of total voting power, or control of or participation in business decisions under an agreement) in a company that is not a subsidiary. A joint venture company is covered in the associate definition.

Worked examples

Example 1

Distinguish between a private company and a public company on the basis of minimum members, maximum members, minimum directors, share transfer and invitation to the public.

Show the solution

Identify the basis: classification by number of members and transferability.
Minimum members: private company 2; public company 7.
Maximum members: private company 200 (excluding employee members and former employees who became members while employed and continue as members; joint holders count as one member); public company has no limit.
Minimum directors: private company 2; public company 3.
Share transfer: a private company restricts the right to transfer shares in its articles; a public company cannot restrict the right to transfer shares by its articles, so its shares are freely transferable.
Public invitation: a private company prohibits it; a public company may invite the public to subscribe to its shares or debentures.

Answer: A private company needs 2 to 200 members, at least 2 directors, restricts share transfer and cannot invite the public. A public company needs at least 7 members, has no maximum, at least 3 directors, cannot restrict share transfer by its articles and may invite the public.

Example 2

Rohit, an Indian citizen who lives in India, wants to start a business alone with limited liability. He asks whether he can form an OPC, who can succeed him if he dies, and whether he can later form a second OPC as its sole member. Advise him.

Show the solution

An OPC is a company with only one person as a member and it is a private company.
Eligibility: only a natural person who is an Indian citizen can form it, whether resident in India or not. Rohit is a natural person and an Indian citizen, so he is eligible.
Liability: the OPC is a separate legal person, so Rohit's liability is limited, as it is for any registered company with limited liability.
Nominee: Rohit must name another person in the memorandum as nominee, who will become the member on his death or incapacity to contract.
Second OPC: one person cannot be the sole member of more than one OPC at a time, so Rohit cannot form a second OPC as its sole member.

Answer: Rohit can form an OPC because he is a natural person and an Indian citizen. He must name a nominee in the memorandum, who will take over on his death or incapacity. He cannot be the sole member of a second OPC.

Exam tips

Comparison questions are common. Write them as numbered points so the examiner can tick each one.
Memorise the numbers 2, 7, 1 for members and 2, 3, 1 for directors, and 200 for the private company maximum.
For fact-based questions, always apply the rule to the names and facts in the question before concluding.
Do not quote a section number unless you are certain. A correct rule in plain words earns the marks.
For small, dormant and Section 8 companies, write the purpose and the one key condition first, then add details.

Practice questions from The Companies Act, 2013

Kinds of Companies: frequently asked questions

What are the main kinds of companies for CA Foundation?

Learn them by basis: incorporation, liability, members, control and ownership. Then add special types such as OPC, small company, dormant company and Section 8 company. Most questions come from private vs public and the special types.

What is the difference between a private company and a public company?

A private company has 2 to 200 members, at least 2 directors, restricts share transfer and cannot invite the public to subscribe. A public company needs at least 7 members and 3 directors, and has no member limit. It cannot restrict the right to transfer shares by its articles, so its shares are freely transferable.

What are the main features of a One Person Company?

It has one member and is a private company. Only a natural person who is an Indian citizen can form it, whether resident in India or an NRI. A company cannot form an OPC. The memorandum must name a nominee, and one person cannot be the sole member of more than one OPC.

What is a Section 8 company?

It is a company formed to promote charitable objects like education, science, sports, social welfare or environment protection. It applies its profits to those objects and pays no dividend to members. It is registered under a licence from the Central Government.