Setting Up of Business, Industrial and Labour Laws · Corporate Entities - Companies

Government Companies, Nidhi and Other Special Companies

Updated 11 October 2026 · Fact-checked

Special companies are companies with extra rules because of who owns them or what they do. A government company has at least 51% government paid-up capital. A Section 8 company needs a Central Government licence, applies profits to its objects and pays no dividend. Nidhi and producer companies have their own member-focused rules.

Understand Government Companies, Nidhi and Other Special Companies

Most companies exist to earn profit for shareholders. The Companies Act, 2013 also recognises companies with a different ownership or purpose. You study them as a group because the exam asks you to identify the type and state its special features.

A government company is a company in which at least 51% of the paid-up share capital is held by the Central Government, or by one or more State Governments, or partly by the Central Government and partly by one or more State Governments. A company that is a subsidiary of such a company is also a government company. This definition is in Section 2(45). Examples are public sector undertakings like Bharat Heavy Electricals Limited. Learn the test: it is about paid-up capital held by government, not about who runs the company.

A Section 8 company is formed for charitable or similar purposes. Section 8(1) lists the objects: promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object. The company must intend to apply its profits or other income to promoting these objects. It must also intend to prohibit payment of any dividend to its members. If the Central Government is satisfied, it issues a licence. The company is then registered without adding "Limited" or "Private Limited" to its name.

A Section 8 company still enjoys all the privileges and is subject to all the obligations of limited companies (Section 8(2)). A firm may be a member (Section 8(3)). It cannot alter its memorandum or articles without previous approval of the Central Government (Section 8(4)(i)). It can convert into another kind of company only after complying with prescribed conditions. The Central Government can revoke the licence for contravention, fraud, acting against its objects or prejudice to public interest.

A Nidhi company is a company that borrows from and lends to its members only, to cultivate thrift and savings. It is regulated by the Nidhi Rules made under the Act, and is notified as a Nidhi by the Central Government. A producer company is a company of primary producers, such as farmers, formed to deal with their produce. Both are member-centred. Your answer should name the type, give its defining feature and then add the legal consequences.

Key rules to remember

Government company test: Government holding in paid-up share capital ≥ 51%, or subsidiary of a government company; Holding may be by the Central Government, one or more State Governments, or both together. Defined in Section 2(45).
Section 8 conditions: Objects in Section 8(1)(a) + profits applied to objects + no dividend + Central Government licence; All must be satisfied. The name omits "Limited" or "Private Limited".
Section 8 alteration rule: Change in memorandum or articles → previous approval of Central Government; Section 8(4)(i).
Section 8 revocation: Contravention, fraud, acting against objects or prejudice to public interest → licence revoked after hearing; Section 8(6). Central Government may then direct conversion and name change. Winding up or amalgamation under Section 8(7) only if essential in public interest.
Section 8 amalgamation: Amalgamation only with another Section 8 company having similar objects; Section 8(10).
Section 8 default penalty: Company: fine ₹10,00,000 to ₹1,00,000,000. Officer in default: fine ₹25,000 to ₹25,00,000; Section 8(11). If affairs are conducted fraudulently, every officer in default is liable for action under Section 447. The penalty is a fine only; imprisonment was omitted in 2020.
Surplus assets on winding up: Transfer to another Section 8 company with similar objects (Tribunal conditions) or sell and credit proceeds to the Insolvency and Bankruptcy Fund; Section 8(9). Members do not take the surplus.
Nidhi core rule: Borrow from members and lend to members only; Purpose: cultivating thrift and savings. Check the Nidhi Rules for detailed limits, as these are not in the text supplied here.

How to solve Government Companies, Nidhi and Other Special Companies questions

Use this method for any question on special companies, whether it is a definition, a features question or a case-based problem.

1Read the facts and identify which type of company is involved: government, Section 8, Nidhi or producer.
2State the defining test in one sentence, for example the 51% paid-up capital test or the three Section 8 conditions.
3Apply the test to the facts with figures. For a government company, compute the government percentage including holdings of both Central and State Governments.
4List the special features relevant to the question, such as licence, name, dividend ban, alteration approval or amalgamation limit.
5Cite the section, for example Section 2(45) or Section 8(4), where you are sure of it.
6Write a clear conclusion that answers exactly what was asked, such as whether the company is a government company or whether approval is needed.

Quickest way: Type, test, consequence

When to use it: Use it for short-note and case questions when time is tight.

Write the type of company in the first line.
Write the test or conditions in one line each.
Write two or three features that matter for the question.
End with a one-line conclusion.

Common mistakes in Government Companies, Nidhi and Other Special Companies

Saying a company is a government company because the government controls it, without checking paid-up capital.
Students think control means ownership.
Fix: Always test the share capital: 51% or more paid-up capital held by the governments, or being a subsidiary of a government company.
Ignoring State Government holdings when computing the 51%.
Students remember only the Central Government.
Fix: Add Central and State Government holdings together. Both count under Section 2(45).
Saying a Section 8 company cannot earn profit.
The no-dividend rule is misread.
Fix: It may earn profits. It must apply them to its objects and cannot pay any dividend to members.
Saying a Section 8 company can freely alter its memorandum or articles.
Students treat it like an ordinary company.
Fix: Remember Section 8(4)(i): previous approval of the Central Government is required.
Writing that Section 8 officers face imprisonment for default.
Old versions of the section are remembered.
Fix: Under the current text the penalty is a fine only. Fraud leads to action under Section 447.
Thinking a Section 8 company may amalgamate with any company.
Students overlook Section 8(10).
Fix: It may amalgamate only with another Section 8 company having similar objects.

Worked examples

Example 1

The paid-up share capital of Ganga Infra Limited is ₹100 crore. The Central Government holds ₹30 crore and the Government of Gujarat holds ₹25 crore. Is it a government company? Would your answer change if the holdings were ₹30 crore and ₹15 crore?

Show the solution

Test under Section 2(45): government holding of at least 51% of paid-up share capital.
Combined holding = ₹30 crore + ₹25 crore = ₹55 crore.
Percentage = 55 ÷ 100 × 100 = 55%, which is above 51%.
In the second case, combined holding = ₹30 crore + ₹15 crore = ₹45 crore, which is 45%.
45% is below 51%, so the test is not met on that basis alone.

Answer: In the first case Ganga Infra Limited is a government company, since combined Central and State holding is 55% of paid-up capital. In the second case it is not, as the holding is only 45%, unless it is a subsidiary of a government company.

Example 2

Vidya Foundation, a Section 8 company, wants to add a new object to its memorandum and to pay a dividend of 5% to its members out of surplus. Advise it. Also state what happens to its assets if it is wound up.

Show the solution

Identify the company as a Section 8 company, licensed by the Central Government to promote objects such as education and charity.
On changing the memorandum: under Section 8(4)(i), it cannot alter its memorandum or articles except with previous approval of the Central Government.
On dividend: Section 8(1)(c) requires the company to prohibit payment of any dividend to its members. A 5% dividend is therefore not permitted.
Consequence of default: the company is punishable with fine from ₹10 lakh up to ₹1 crore, and officers in default with fine from ₹25,000 up to ₹25 lakh under Section 8(11). The licence may also be revoked under Section 8(6) after a hearing.
On winding up: remaining assets after debts may be transferred to another Section 8 company with similar objects, subject to Tribunal conditions, or sold and proceeds credited to the Insolvency and Bankruptcy Fund (Section 8(9)).

Answer: Vidya Foundation may add the object only with previous approval of the Central Government. It cannot pay any dividend. Contravention can attract fines and revocation of licence. On winding up, surplus assets go to a similar Section 8 company or to the Insolvency and Bankruptcy Fund, not to members.

Exam tips

Learn Section 8 sub-section by sub-section. Questions often test one rule such as alteration approval, amalgamation or penalty.
For government company questions, show the percentage calculation. Marks are often given for the working.
Write the contrast with an ordinary company in points: licence, name, dividend, alteration and amalgamation.
For Nidhi and producer companies, state the defining feature and say it is governed by specific rules. Do not quote limits you are unsure of.
Close every answer with a conclusion in the ICSI style: provision, analysis, conclusion.

Practice questions from Corporate Entities - Companies

Government Companies, Nidhi and Other Special Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Government Companies, Nidhi and Other Special Companies: frequently asked questions

What is the definition of a government company under Section 2(45)?

It is a company in which at least 51% of the paid-up share capital is held by the Central Government, by one or more State Governments, or partly by both. A subsidiary of such a company is also a government company.

What are the features of a Section 8 company?

It has charitable or similar objects, applies profits to those objects and pays no dividend. It is registered under a Central Government licence, usually without "Limited" or "Private Limited" in its name. It still has the privileges and obligations of limited companies.

What is the difference between a Section 8 company and an ordinary company?

An ordinary company aims at profit for its members, who can receive dividends. A Section 8 company promotes charitable-type objects, cannot pay dividends and needs licence and Central Government approval for changes to its memorandum or articles. It can amalgamate only with another Section 8 company having similar objects.

Can a Section 8 company lose its licence?

Yes. The Central Government may revoke the licence if the company contravenes the section or licence conditions, acts fraudulently, acts against its objects or acts against public interest. It must first give the company a reasonable opportunity of being heard.

What is a Nidhi company?

It is a company that takes deposits from and lends to its members only, to promote thrift and savings. It must follow the Nidhi Rules notified by the Central Government.