Setting Up of Business, Industrial and Labour Laws · Selection of Business Organization

Types of Companies under the Companies Act, 2013

Updated 11 October 2026 · Fact-checked

A company is an artificial legal person with its own identity, perpetual succession and limited liability. The Companies Act, 2013 allows private, public, one person, small and Section 8 companies. To answer questions, identify the type, state its features and limits, then conclude on suitability for the business.

Understand Company Form of Organisation under Companies Act, 2013

A company is a separate legal person created by registration. It owns property, sues and is sued in its own name, and continues even if members change. This is separate legal entity and perpetual succession. Members of a limited company risk only the unpaid amount on their shares or their guarantee.

Companies can be classified in several ways. By incorporation and size of membership you get private, public, one person company (OPC) and small company. By purpose you get a Section 8 company, which is formed for charitable and similar objects. Each type suits a different business need.

A private company restricts transfer of shares by its articles, limits its members (the Act's cap is 200, which you should know from the definitions) and prohibits invitation to the public to subscribe to its securities. A public company has no such restrictions. It can raise money from the public, and its shares can be listed. It needs more members and more compliance. The minimum numbers of members and directors differ for each type, so revise them from your study material.

An OPC has a single member and suits a sole entrepreneur who wants limited liability. A small company is a size-based category defined by paid-up capital and turnover limits, and it gets some relief in compliance. Under section 446B, if a penalty is payable by an OPC, small company, start-up company or Producer Company, it is capped at one-half of the stated penalty, subject to a maximum of ₹2,00,000 for the company and ₹1,00,000 for an officer in default.

A Section 8 company is licensed by the Central Government. It must promote objects such as commerce, art, science, sports, education, research, social welfare, religion, charity or protection of environment. It must apply profits to those objects and must not pay dividend. Compared with an LLP, a company has stricter compliance and board structure, but it can raise equity and issue shares. An LLP has flexible internal management under its agreement and is a separate legal entity with limited liability of partners.

Key rules to remember

Section 8 conditions: Objects (commerce, art, science, sports, education, research, social welfare, religion, charity, environment) + profits applied to objects + no dividend; All three conditions must be met. The Central Government grants a licence. The company may omit 'Limited' or 'Private Limited' from its name.
Section 8 alteration rule: Change of memorandum or articles = previous approval of Central Government; Section 8(4)(i). Ordinary companies alter articles by special resolution, but this company needs prior approval.
Section 8 penalty on default: Company: ₹10,00,000 to ₹1,00,00,000; officer in default: ₹25,000 to ₹25,00,000; Section 8(11). Fraud makes officers liable under section 447.
Conversion of public to private: Special resolution + approval of Central Government order; Section 14(1). Without that order the conversion is not valid. File the alteration and order with the Registrar within 15 days under section 14(2).
Lesser penalty (section 446B): Penalty ≤ ½ of stated penalty, max ₹2,00,000 (company) and ₹1,00,000 (officer or other person); Applies to OPC, small company, start-up company and Producer Company.
Section 8 company on winding up: Surplus assets → another Section 8 company with similar objects, or sold and proceeds credited to the IBC Fund; Section 8(9). Members do not take the surplus.

How to solve Company Form of Organisation under Companies Act, 2013 questions

Use this method for any question on types of companies, comparisons or suitability of a company form.

1Read the facts and note the purpose, number of persons, source of funds and size of business.
2Name the type of company that fits the facts, or the types you are asked to compare.
3State the definition or main features of each type in plain words, with the section where you are sure of it.
4Apply the features to the facts: liability, transfer of shares, public funding, compliance and cost.
5For a Section 8 company, check all three conditions and the licence, and note the alteration and dividend restrictions.
6For a comparison, use a point-by-point layout and cover membership, capital raising, transfer, compliance and conversion.
7Write a clear conclusion: the recommended form and the reason.

Quickest way: Purpose-first matching

When to use it: Use it for short-note or scenario questions when time is limited.

Ask: is the aim profit or charity? Charity with no dividend points to Section 8.
Ask: how many owners? One owner points to OPC; few owners with restricted transfer point to private company.
Ask: does the business need public money? If yes, choose public company.
Ask: is it small by capital and turnover? Mention small company relief and section 446B.
Write one line of advantage and one line of limitation, then conclude.

Common mistakes in Company Form of Organisation under Companies Act, 2013

Saying a Section 8 company can pay dividend if profits are high.
Students treat it like any other limited company.
Fix: Remember that section 8(1)(c) requires the intention to prohibit dividend. Profits go back into the objects.
Claiming that a Section 8 company can alter its objects by special resolution alone.
Students apply the general rule for alteration of articles.
Fix: State that section 8(4)(i) needs the previous approval of the Central Government.
Writing that conversion of a public company into a private company needs only a special resolution.
Section 14(1) mentions special resolution first, and the further proviso is missed.
Fix: Add that the alteration is not valid unless approved by an order of the Central Government.
Treating a small company as a separate legal form like an OPC.
Both appear in the same list of types.
Fix: Explain that small company is a size-based category with compliance relief. A private company can be a small company.
Confusing a company with an LLP, for example saying an LLP issues shares.
Both give limited liability, so students merge them.
Fix: Contrast them: a company has shares, directors and a stricter regime. An LLP has partners and an LLP agreement, and gets its own registration under the LLP Act.
Saying a firm cannot be a member of a Section 8 company.
Students assume only individuals can be members.
Fix: Section 8(3) allows a firm to be a member.

Worked examples

Example 1

Seva Trust Foundation, a group of educationists in Pune, wants to run a research institute as a company. It will reinvest all surplus and pay no dividend. Advise on the type of company and its main conditions.

Show the solution

Provision: Section 8 permits registration of a limited company for objects including education and research, if it applies profits to its objects and prohibits dividend. The Central Government grants a licence.
Facts: The objects are education and research. The group will reinvest surplus and pay no dividend. All three conditions are met.
Analysis: The company can omit 'Limited' or 'Private Limited' from its name. It enjoys the privileges and obligations of limited companies under section 8(2).
Restriction: It cannot alter its memorandum or articles without the previous approval of the Central Government. The licence can be revoked on breach or if affairs are conducted fraudulently or against public interest.
On winding up, surplus assets go to another Section 8 company with similar objects, or are sold and the proceeds credited to the IBC Fund.

Answer: The group should incorporate a Section 8 company with a Central Government licence. It may drop 'Limited' or 'Private Limited' from its name, cannot pay dividend and needs prior approval to alter its constitution.

Example 2

Distinguish a private company from a public company, and say which suits Ravi, a sole owner of a small textile unit in Surat who wants limited liability and no outside investors.

Show the solution

Private company: articles restrict share transfer, membership is limited, and it cannot invite the public to subscribe to its securities. It needs fewer members and less compliance.
Public company: no such restrictions. It can invite the public, its shares can be freely transferred and listed, and compliance is heavier.
Ravi has one owner and no wish to raise money from the public. An OPC gives him limited liability as a single member.
He could also use a private company with another member later. A public company would be costly and unnecessary.
Compliance relief and the section 446B penalty cap may apply if the company is an OPC or small company.

Answer: A private company restricts transfers and public invitations. A public company does not. Ravi should form an OPC, since he is the only owner and needs limited liability without public funds.

Exam tips

Write company-type answers in ICSI style: definition, features, facts applied, conclusion.
For comparisons, use point-wise differences on membership, share transfer, public funds, compliance and conversion.
Always quote the three Section 8 conditions and the dividend ban. This is a favourite short-note area.
Quote section numbers only when sure. Sections 8, 14 and 446B are safe from the official text.
Add a line comparing company and LLP in suitability questions, covering shares, liability and compliance.

Practice questions from Selection of Business Organization

Company Form of Organisation under Companies Act, 2013 in other exams

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

Company Form of Organisation under Companies Act, 2013: frequently asked questions

What are the main types of companies under the Companies Act, 2013?

For this topic, learn private, public, one person, small and Section 8 companies. Each has its own purpose, features and compliance level. Your study material also covers other classes, such as government and foreign companies, as separate topics.

Can a Section 8 company pay dividend?

No. Section 8(1)(c) requires that it prohibit payment of any dividend to members. It must apply profits or income to promoting its objects.

Can a public company be converted into a private company?

Yes. Section 14 allows it by special resolution altering the articles. The alteration is not valid unless the Central Government approves it by order. The alteration and order must be filed with the Registrar within 15 days.

What is the difference between an LLP and a private limited company?

A private company has shareholders and directors and must follow the Companies Act. It can issue shares. An LLP has partners and is governed by its LLP agreement and the LLP Act. Both are separate legal entities with limited liability.

Does section 446B reduce penalties for all companies?

No. It covers a One Person Company, small company, start-up company and Producer Company. The penalty is not more than half of the stated penalty, up to ₹2,00,000 for the company and ₹1,00,000 for the officer in default.