Business Laws and Ethics · Company Types, Promotion, Formation and Related Procedures

Kinds of Companies under the Companies Act, 2013

Updated 10 October 2026 · Fact-checked

Companies are classified by incorporation, liability, number of members, control and ownership. Key kinds are private, public, one person, small, dormant, Section 8, government and foreign companies. To answer an exam question, identify the basis of classification, state the defining feature, then give the special rule or section that applies.

Understand Kinds of Companies

A company is a separate legal person created by registration. But not all companies are alike. The Act lets you register different kinds, and each kind has its own rules on members, directors, raising money and penalties. The syllabus asks you to sort them by a basis of classification.

The main bases are: incorporation (registered under the Act, or a foreign company), liability (limited by shares, limited by guarantee, unlimited), number of members (one person, private, public), control (holding and subsidiary) and ownership (government company). Add the special kinds: small company, dormant company and Section 8 company.

A private company restricts the right to transfer its shares, limits its members (to 200, not counting employees and ex-employees who are members) and bars any invitation to the public to subscribe to its securities. It needs at least two members and two directors. A public company is one that is not private. It needs at least seven members and three directors. Under section 23, a public company may issue securities by public offer through a prospectus, by private placement, or by a rights or bonus issue. A private company may use only rights or bonus issues or private placement.

A one person company (OPC) is a private company with only one member. It also has a nominee for that member. A small company is a company other than a public company (and other than a holding or subsidiary company, a Section 8 company, or a company under a special Act) that stays within the prescribed limits of paid-up capital (not above ₹4 crore) and turnover (not above ₹40 crore). Under section 446B, OPCs, small companies, start-up companies and Producer Companies pay lesser penalties: not more than one-half of the penalty specified, subject to a maximum of ₹2,00,000 for the company and ₹1,00,000 for an officer in default or any other person.

A dormant company is one formed for a future project or to hold an asset or intellectual property, with no significant accounting transaction, or an inactive company. It applies for dormant status under section 455. This matters because section 248(1)(c) lets the Registrar start striking off a company that did no business for two immediately preceding financial years and did not apply for dormant status. A Section 8 company is formed for charitable and similar objects. A government company is one where the Central or State Government holds at least 51% of paid-up share capital. A foreign company is incorporated outside India but has a place of business in India.

Key rules to remember

Private company minimums: Members ≥ 2; directors ≥ 2; members ≤ 200 (excluding employees and ex-employees who are members); Also restricts share transfer and bars public invitation to subscribe.
Public company minimums: Members ≥ 7; directors ≥ 3; A public company is a company that is not a private company.
One person company: Members = 1 (private company) + a nominee; One person company needs at least one director.
Small company limits: Paid-up capital ≤ ₹4 crore and turnover ≤ ₹40 crore; Excludes public companies, holding or subsidiary companies, Section 8 companies and companies under a special Act.
Section 8 conditions (s. 8(1)): Charitable or similar object + profits applied to promote objects + no dividend to members + Central Government licence; Licence may allow registration without 'Limited' or 'Private Limited' in the name.
Section 8 alterations (s. 8(4)): Change in memorandum or articles = previous approval of Central Government; Conversion to another kind of company only after complying with prescribed conditions.
Section 8 default penalty (s. 8(11)): Company: ₹10 lakh to ₹1 crore; directors and officers in default: ₹25,000 to ₹25 lakh; If affairs were conducted fraudulently, every officer in default is liable under section 447.
Lesser penalty (s. 446B): Penalty ≤ 1/2 of specified penalty, capped at ₹2,00,000 (company) and ₹1,00,000 (officer or other person); Applies to OPC, small company, start-up company and Producer Company.
Securities a company may issue (s. 23): Public: public offer, private placement, rights or bonus. Private: rights or bonus, private placement; A private company cannot make a public offer.
Strike off (s. 248(1)): Not commenced business in 1 year, or no business for 2 preceding financial years and no dormant application; Registrar sends notice; 30 days to give representations.

How to solve Kinds of Companies questions

Use this method for any question on kinds of companies, whether it asks for a definition, a comparison or a scenario.

1Read the question and find the basis of classification: incorporation, liability, members, control or ownership.
2Name the kind of company in the scenario. Check the number of members, share transfer restrictions, public invitation and the object.
3State the defining feature in one line, with the minimum members and directors if relevant.
4Apply the special rule that fits: section 23 (securities), section 8 (licence, no dividend, approval to alter), section 446B (lesser penalty) or section 248 and dormant status.
5Check exceptions, such as the exclusions from a small company or the bar on voluntary strike off for a Section 8 company.
6Do any arithmetic (halving a penalty, applying the cap) and show it.
7Close with a clear conclusion in one sentence.

Quickest way: Feature-and-section matching

When to use it: Use it for MCQs and short-note questions where you have under two minutes.

Underline the clue words: 'one member', 'no dividend', 'licence', 'no business for two years', 'turnover', 'Government holds'.
Match each clue to a kind: one member = OPC; no dividend and licence = Section 8; no business and no application for dormant status = strike off risk; turnover and capital limits = small company.
Eliminate options that break a rule, such as a private company making a public offer.
If a penalty is involved for OPC or small company, halve it and apply the cap.

Common mistakes in Kinds of Companies

Saying a private company can invite the public to subscribe to its shares.
Students remember that it can issue securities, but forget how.
Fix: Under section 23 a private company can use only rights or bonus issues or private placement. A public offer is for public companies.
Thinking a Section 8 company can pay dividends if it has profits.
It is a limited company, so students assume normal dividend rights.
Fix: Section 8(1) requires the company to apply its profits to promote its objects and prohibit dividend to members.
Saying a Section 8 company can alter its memorandum or articles by special resolution alone.
Students apply the rule for ordinary companies.
Fix: Section 8(4)(i) requires the previous approval of the Central Government.
Applying the section 446B cap to the whole penalty instead of halving first.
Students remember the figures ₹2 lakh and ₹1 lakh but skip the 'one-half' step.
Fix: Take the lower of (one-half of the specified penalty) and the cap. Do it separately for the company and the officer.
Treating a dormant company as one that is struck off.
Both ideas involve inactivity.
Fix: A dormant company has applied for and obtained that status (section 455). Strike off under section 248 is a risk for an inactive company that did not apply.
Including a public company or a holding or subsidiary company in the small company category.
Students check only the capital and turnover limits.
Fix: Check the exclusions first, then the limits.

Worked examples

Example 1

Aarav Traders Private Limited has 150 members and wants to raise ₹2 crore from the general public through a prospectus. Advise the company, and state what other ways of raising securities it has.

Show the solution

The company is a private company, which can have up to 200 members, so 150 members is within the limit.
Under section 23(2), a private company may issue securities only by rights issue or bonus issue, or through private placement.
A public offer through a prospectus is available to a public company under section 23(1)(a). It is not available to a private company.
So the company cannot invite the public to subscribe through a prospectus.

Answer: Aarav Traders Private Limited cannot make a public offer. It may issue securities by rights issue, bonus issue or private placement. If it wants to approach the public, it must first become a public company.

Example 2

A small company contravenes a provision for which the Act specifies a penalty of ₹5,00,000 on the company and ₹3,00,000 on each officer in default. Using section 446B, find the maximum penalty on the company and on each officer.

Show the solution

Section 446B allows a penalty of not more than one-half of the penalty specified, subject to a maximum of ₹2,00,000 for a company and ₹1,00,000 for an officer in default.
Company: one-half of ₹5,00,000 = ₹2,50,000. The cap is ₹2,00,000. As ₹2,50,000 is more than ₹2,00,000, the cap applies.
Officer: one-half of ₹3,00,000 = ₹1,50,000. The cap is ₹1,00,000. As ₹1,50,000 is more than ₹1,00,000, the cap applies.

Answer: The maximum penalty is ₹2,00,000 on the company and ₹1,00,000 on each officer in default.

Exam tips

Learn the comparison table in your head: private vs public on members, directors, share transfer, public offer and prospectus. Write it as short parallel points.
For Section 8 questions, quote the four conditions from section 8(1) and add the approval rule for alterations, the dividend bar and the penalty range.
For OPC and small company questions, link the kind to section 446B and show the halving and cap arithmetic step by step.
In short notes on dormant company, state what it is, the section 455 application and the link to Registrar strike off under section 248.
In the MCQ section, watch for 'cannot' and 'not' in the stem. There is no negative marking, so always attempt every question.

Practice questions from Company Types, Promotion, Formation and Related Procedures

Kinds of Companies: frequently asked questions

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

A private company restricts share transfer, limits members to 200 (excluding employees and ex-employees who are members) and cannot invite the public to subscribe. A public company is one that is not private. It needs more members and directors and may make a public offer through a prospectus.

What is a Section 8 company?

It is a company formed to promote objects such as commerce, art, science, sports, education, research, social welfare, religion, charity or protection of environment. It must apply profits to its objects and cannot pay dividends. It is formed under a Central Government licence and may omit 'Limited' or 'Private Limited' from its name.

What are the special provisions for a one person company and a small company?

An OPC is a private company with one member and a nominee. Small companies must meet capital and turnover limits. Under section 446B, OPCs and small companies pay lesser penalties, not more than one-half of the specified penalty, up to ₹2 lakh for the company and ₹1 lakh for an officer.

What is a dormant company under the Companies Act, 2013?

A dormant company is one formed for a future project or to hold an asset or intellectual property, or an inactive company with no significant accounting transaction. It applies for dormant status under section 455. A company that does no business for two financial years and does not apply risks being struck off under section 248.

Can a Section 8 company be struck off voluntarily?

No. Section 248(3) says that the voluntary removal route in section 248(2) does not apply to a company registered under section 8. The Registrar's powers under section 248(1) are a separate matter.