The subject of types of companies is not necessarily new on this platform. The subject of what a PBC and a PLC are has been covered before. Kindly check out that article for more details on those two. You must appreciate thought that there are several more different types of companies. This is valuable information when you are looking to register a business or startup. Aside from registration purposes, it is useful to know for planning and strategy formulation purposes. Overall, the business entity types you settle for have huge implications on your operations. Let us look at the different types of companies you must know.
Sole Proprietorship (Or Sole Trader)
This is the most popular type of company or business entity. This arrangement entails all the benefits and risks being acquired by one person. Here, legally, there is no separation between the business’ assets and liabilities and the owner’s. This means that the owner and business entities are the same things. The reason why most people settle for this is that is hassle-free. It is easy to set up plus there are far fewer regulatory obligations. There are unlimited liabilities and the as the owner you enjoy total control over decision-making.
Corporation
This is a company that is separate and distinct from its owners. It is a recognized legal entity and is in principle owned by shareholders. The shareholders assume both the profits and losses. Characteristically, a corporation is a legal entity, that has limited liability, and continuity. This means a corporation can do business with and pursue legal action against other people or entities. This also means a corporation is limited to the extent of its resources unless its owners guarantee otherwise. Thirdly, a corporation can outlive its owners i.e. the corporation’s ownership can be transferred. This can be done by either selling or giving the shares to new owners.
Private Voluntary Organization (PVO)
PVOs are also known as non-governmental organizations (NGOs). They are also referred to as non-profit or not-for-profit organizations (NPOs). A PVO is an organization, independent of the respective government that aims to further humanitarian causes. PVOs by nature are self-governing (usually by trustees), membership-based (commonly), philanthropic and are set up to benefit non-members. The core feature of PVOs is that their operations are largely non-profit. In Zimbabwe, you can set up a PVO by choosing from 3 options namely, through Common Law Veritas, as a PVO, or as a Trust. I once did an article where I explained all this.
Holding Company
This type of company is set up to purchase and own shares in other companies. This is a company that controls or can control other companies (called subsidiaries). It wields a controlling interest in those companies. This implies that it does not do any actual business operations e.g. manufacturing, selling, and the like. This is a preferred setup for those who wish to venture into diversified fields. This is because with a holding company you can venture into other areas not necessarily in your core industry or industries. A holding company holds the assets of or in the subsidiaries (also known as operating companies). This means that the core business activities are done by the subsidiaries.
Subsidiary Company
This is a company that is controlled by another (usually referred to as the parent company or holding company). This control is made possible by the parent company owning over half of its voting stock. Here I can also add what is termed an associate company. If a holding company owns between 20 and 50 percent voting stock of a company it is an associate company. When it owns less than 20 percent then it is merely just an investment. It is common practice that a holding company is not responsible for a subsidiary’s debts. There are exceptions though e.g. when the subsidiary is a limited liability company.
Shell Company
This is a non-trading company usually listed on a stock exchange. It only exists on paper. It also has no physical offices and no staff. A shell company does not provide goods or services. It is typically used to put together capital, commence takeovers, or for going public. Shell companies are vehicles usually used to manage assets for other people or businesses. Bear in mind that a shell company can also be used as a front for illicit business activity.
Shelf Company
A shelf company is also referred to as a blank check company. This is a ready-made on-paper company which is legally recognized. Often time such companies are sold to willing buyers, especially those looking to circumvent the hassles of traditional company registration. If a company was legally registered but never did anything i.e. trading or holding assets; that is a shelf company. Do you get the picture now? A shelf company makes it easy to purchase an already registered company. In Zimbabwe, you can purchase a shelf company for an average of US$220. That amount includes all the alterations or amendments you might need to be done.
Broadly, there are 4 main classifications of companies. These are sole proprietorships, partnerships, limited liability companies, and corporations. However, they branch off into several other classifications as we discussed in this article. There are several more too. We have barely scratched here as there are more intricate details to cover on each type of company. You must dig deeper into this subject so that you are well informed. You can find out more from company registration experts. You can also engage legal experts who can give you finer details.
