Types of Companies

 

Types of Companies in General

Generally, there are three types of Companies; Chartered Companies, Statutory Companies, and Registered Companies.

Chartered Companies: These companies were created by the Crown in England through granting a charter to the person constituting incorporation and the charter was describing the objects and power of such companies, for instance, East India Company. Such a form of companies are not existing in Pakistan now.

Statutory Companies: Companies establish by special Acts are called statutory companies. These companies are usually made for special undertakings such as water, gas, and else. Some of the examples of statutory companies in Pakistan include PIA, the State Bank of Pakistan, etc.

Registered Companies: The companies that are registered under the company Act 2017 are known as the registered companies. These companies are registered under general law. The registered Companies are divided into three types and it is further categorized into different criteria.

a)      Companies for profit: Most of the companies are made to derive profit. To get the profit companies issue stock to their shareholders who invest in the company with the goal of earning profit. This profit may take the form of dividends paid by the company or increase the market value of their share. Such a form of companies needed to be registered under the company Act 2017. They are divided into the following classes.

·         Public Company

·         Private Company

·         Single-member Company

b)      Non Profit Companies: Usually don’t issue stock and are companies limited by guarantee. These are also required to be registered under the Act.

c)      Public sector or Government-owned Companies: These are also registered under the company Act. The majority of shares owned by these companies belong to the government. 

Types of Limited Liability Companies

                   I.            Limited by Shares: Section 2(20) of the Act defines a limited liability company as a company with the limited liability of its members by the memorandum to the extent of the amount, or the number of shares held by them, or remaining unpaid amount. Section 27 (A)(Vi) makes it compulsory to add the capital clause in order to provide the shares of a fixed amount which is the amount that determines the maximum liability of the shareholder.

Section 61 treats shares as movable property though they are chosen. A share in any company is a thing in an action of the proprietary character.

A shareholder is not a co-owner of the assets of the company, yet the natural person's extent of rights and duties are measured by the amount of shareholding. The relationship between the shareholder and the company is called corporate democracy.

A company limited by shares gets its working funds from the issue of shares which may be subscribed by the signatory to the memorandum of association or allotted to applicants for cash or consideration. The shareholders are under obligation to pay for the company in amount to the shares they have taken in. The shareholder puts the input, buys the shares, and the company gives the extend of ownership to the amount he has brought the share. Once the unpaid money is fully paid by the shareholder, further money is not provided by the shareholder because his liability to the company is satisfied.

                II.            Company Limited by Guarantee: Section 2(19) defines a company limited by guarantee as a company where the shareholder undertakes to contribute to the assets of the company in the memorandum when the company is about to wind up. This type of company may or not have a capital share. This company also has to embody into its memorandum a statement manifesting that the liability of the company is limited. The most variant character of a company limited by guarantee is this that liability is implemented at the time of winding up of the company and even during this event under certain circumstances. The initial funds are not raised from its members but funds obtained from other sources.

Originally a company limited company is a private company, as it has no share capital. Rarely, these types of companies avail the form of corporate organizations, for instance, trade associations, some religious associations, and else.

Section 42 provides a company limited by guarantee to acquire the form of the public company and it may distribute the profits to the members if it is not repugnant to the memorandum. For this, it requires an issued license and it also has to exempt from the requirement of adding the word limited. This form is highly suitable for non-profit organizations.

In the memorandum of a company limited by guarantee, a contribution clause is compulsory that contains that the confirmation of its members to contribute to the company during its winding up. A member of the company limited by guarantee has dual liability

The increasing and decreasing number of members in a company limited by guarantee is decided by the directors. It is the discretion of the directors to admit new members and this addition has to be communicated to the registrar. 

       I.            Unlimited Company: Section 2(17) defines an unlimited company as a company not having any limit on the liability of its members. Such a company omits the limited liability clause and doesn’t use the word limited. This type of company is usually formed to accommodate large partnerships and unincorporated associations. The maximum number of partners in such a company can exceed 20. However, the partners don’t have the same status as in the partnership. Although the Acts permit it to be public companies yet this type of company is not suitable for a public form of company.

Classification of Companies Limited by Shares

                   I.            Public sector/ Government companies: Section 2(54) defines a public sector company as a public or private company that is directly or indirectly controlled which fifty-one or more than fifty-one percent of voting power is held by the government, agency of government, or any statutory body. Such companies are autonomous yet vital decisions are controlled by the government. In order to privatize such a companies amendment is needed in the law. Example of PTC

                II.            Private Sector Companies: A private sector companies can be divided into public companies, private companies with multiple members, and private single-member companies. It is further categorized into;

a.      Multiple member companies: This type of company restricts the right to transfer its shares, limit the number of members to fifty, and prohibit any invitation to the public to subscribe for the sharers

b.      Single Member Company: A single-member company is a private company that has only one member/director and he avails the privilege of limited liability. The salient features of a single-member company are;

·         It is a private company

·         It is limited by shares with one shareholder

·         Word limited is used as the last word in the name of a single-member company

·         By increasing the number of its members to more than one a single member can be converted to a private company

·         By changing its status of a number of members a single-member company can be formed as a private company

·         A single-member company has to mention a nominee while registering the company

·         It has a minimum of one person as a director and a maximum of 15 directors.

             III.            Public Companies: Section 2(25) defines the term public companies as the companies which are not private companies. Thus the characteristic of public companies is the reverse of the private sector companies. A public sector company willing to trade its shares in the stock exchange has to issue a prospectus.  A public company limited by share is the one with following characters;

·         Doesn’t restrict, or permits the right to transfer its shares

·         Don't limit the number of its members to fifty

·         Invite the public to subscribe for the shares or any debentures or redeemable capital of the company

 

Classifications of Registered Companies

The companies Act 2017 uses the basic six criteria for the classification of the companies. Including Social interest, the purpose of the company, size of the company, location of the company, control over the management, and Shariah Compliance.

1)      Classification of companies based on Public and Social interest

Public Interest Company: It is related to the audit and reporting consideration and a public interest company is regulated or legislated as a public interest entity or for which the audit is required by regulation or legislation to be conducted in compliance with the same independence requirement that applies to the audit of listed entities. A public interest company is deemed to be a company with the public interest envisaged in the third schedule. That means that a company will be called a public company when it is added to the third schedule. The schedule requires such a company to comply with such disclosure and reporting requirements as may be specified by the commissioner.

In simple words company other than a company registered as a private limited company is called a public interest company that doesn’t impose any restriction on the right of transfer of its shares. It doesn’t restrain on an invitation to the general public for the subscription of its share and the payment of subscribed shares. Public interest  The public interest company is divided into;

·         Listed Company: Company that is listed on a stock exchange.

·         Unlisted Company: a company whose shares are not listed in the stock exchange. Thus, are not allowed to trade their share through the stock exchange.

Community Interest Company

It is a company that is carried for the benefit of the community. It works on asset lock that is a general term used to describe the restrictions on profit and assets designed to ensure that it is being run for the benefit of the community. Such a company must file community interest annual reports which are available to the public. 

2)      Classification based on Size

Large Sized Company: International financial reporting standards give the criteria of a large-sized company;

·         Non-listed company with paid-up capital of Rs-200M or more, with a turnover of Rs 1 billion or more and employees more than 750

·         A foreign company with a turnover of 1b or more

·         A nonlisted company having annual gross revenue of Rs 200M or above

Medium-Sized Company: The fifth schedule of Accounting Standards states a medium-sized company to;

·         Non listed public company with paidup capital less the 200M, turnover less than Rs 1b, and employees more than 250 but less than 750

·         A private company with paid-up capital of greater than 10M yet not exceed 200M, turnover greater than 100M but not exceeding Rs1b, and employees more than 250 but less than 750

·         A foreign company that has a turnover of less than Rs 1b

Small Sized Company: It is a private company with paid-up up till Rs10M, turnover not exceeding Rs 100M, and employees not more than 250

3)      Classification Based on the purpose

Ordinary Company with general purposes: A company whose purpose is not specifically identified by the Act

Non-Banking Finance Companies

Rea; Estate Company

Agriculture Promotion Companies

4)      Classification of Companies Based on Location

Foreign Company: A company incorporated outside Pakistan. It can have its place of business or liaison office in Pakistan that works through agents or electronic mode.

Free Zone Company:  A company incorporated for the purpose of carrying on business in the export processing zone or in an area notified by the Federal Government as a free zone.

5)      Classification of Companies based on Control over Management

This includes holding companies and subsidiary companies.

6)      Classification of Companies Based on Shariah Compliance

A company conducting its business according to the principles of shariah.

7)      Classification of Companies Based on Transaction Undertaken

This classification includes the inactive companies that are the companies other than the listed one and which have not been carrying on any business or operation or has not made any significant accounting transactions other than operational basic operational expenses.

Other than these classifications there distinct types of companies such as Statutory and Non-statutory companies, Banking and Non banking companies and else.  

 Reference: Imran Ahsan Khan Nyazee, M.Ibrahim Abdullah Khan Nayazee, Company Law 2019