Types of Companies

There are four types of companies registered under company’s Act. Following are brief description:

 

(1) Company Limited by Shares

This is the principal form of company which is registered with the registrar of joint stock companies under the Companies Act. In a company limited by shares, the capital is divided into a number of shares. A person who buys one or more than one shares becomes a member of the company. The shares can be freely transferred and sold. The liability of the members is limited to the amount if any, unpaid on the shares held by them. A company limited by shares is further divided into:

  1. Private company and
  2. Public company

 

(a) Private Limited Company

According to the Companies Act, it can be formed

  • At least by two persons and its total membership cannot exceed 50
  • It also prohibits any invitation to the public to invest their money in shares or debentures of the company.
  • The company by its articles also restricts the right to transfer its shares.

 

(b) Public Limited Company

It can be formed by at least seven members and there is no limit to the maximum number. The public limited company invites applications from investors through advertisement in the newspapers, giving full details of the objects, share capital, method of applying for the procedure to be adopted for the allotment of the shares etc.

 

(2) Company Limited by Guarantee

It is the company in which the liability of its members is limited by the memorandum of association to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up. This type of company is formed mostly when work is of non-profit making nature.

 

(3) Unlimited Company

An unlimited company is that in which the liability of its members is unlimited. Every member of the company is personally liable to the full extent of his personal assets for all the debts of the company while he was a member. The unlimited companies due to great risk do not exist here.

 

(4) Association Not for Profit

Association not for profit is registered under Companies Ordinance Act. It enjoys all the privileges of a limited company without using the word limited or private limited. This association is mainly formed for the promotion of commerce, art, religion, charity etc. The Federal Government grants the license for the association.

 

>>> Read more about Formation of Company

References

Ch., M. A., & Afzal, S. (2010). Advance Accounting. Lahore: Azeem Academy Publisher and Booksellers.

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