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Classifying Companies in India

Instructor: Martin Gibbs

Martin has 16 years experience in Human Resources Information Systems and has a PhD in Information Technology Management. He is an adjunct professor of computer science and computer programming.

There are many different types of companies in India. This lesson will define and describe the major types of business. We will cover structure, liability, and membership.

Company Types

  • Sole Proprietorship
  • Partnership Firm
  • Limited Liability Partnership (LLP)
  • Private Limited Company
  • Public Limited Company
  • Limited Liability Company

Public vs. Private

For people, as well as companies, one size does not fit all. There isn't a single type of organization that fits all business models.

There's no reason for a boutique shop to be set up as a publicly-traded company! Likewise, a multinational corporation can't be run like a sole proprietorship!

Although there are several organizational types, we can break them down by public or private. Once we have that distinction, we can inspect the details further.

Sole Proprietorship

There are countless small businesses run as sole proprietorships. In this type of enterprise, there is only one person that runs the entire business. As a sole proprietor, you have 100% liability in the business. There is no separation between your assets and the business assets.

Partnership Firm

When two or more individuals decide to form a business, they can create a partnership firm. A partnership firm is run by at least two individuals, but not more than 10 in banking, or 20 in other industries.

Like a sole proprietorship, the partners share profits but also the liability. The law doesn't distinguish between the partners and the business: They are considered one and the same.

Limited Liability Partnership (LLP)

Now that we've covered the general structure of the major organizational types in India let's take a look at the differences between a public and a private company.

A public company has a collective ownership. That means it is owned and traded by members of the general public. Usually, you can buy stock in public companies and be considered part of the larger ownership group.

On the other hand, private companies are not traded publicly and are owned by private individuals. Sole proprietorships and private limited companies are considered private.

Note that we refer to public companies as Public Limited and private companies as Private Limited.

Public Company Features

In order to start a public company, you need at least seven members. This is only a minimum! There can be any number of shareholders/members. A public company requires at least three directors to manage and guide the organization.

Private Company Features

If you are looking to start a private firm, you only need two members. Anything less and it is a sole proprietorship! Where a public company has no limit on members, the private company has a limit of 200 members. You need only two directors in a private company.

The following table highlights some of the key features of each.

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