Company Demography in India: Structure, Growth, and Challenges

Introduction

India’s corporate landscape is characterized by a diverse array of companies, each governed by different laws and regulations. This diversity stems from the historical evolution of Indian business practices and the legal frameworks established to regulate them. The companies operating in India can be broadly categorized based on their establishment under laws, liabilities, membership, control, size, and age. This article delves into the structure, growth, and challenges faced by the corporate sector in India.

Companies Based on Establishment Under Laws

1. Statutory Companies: These companies are established through specific acts of parliament or state legislatures with the primary objective of serving the public interest. Examples include the Reserve Bank of India and the Life Insurance Corporation of India. The Companies Act 2013 has limited relevance to statutory companies since they are governed by their respective statutes. In case of any conflict, the special act takes precedence over The Companies Act 2013.

2. Registered Companies: These companies are incorporated under The Companies Act 2013 or its previous versions. They gain the status of a registered company upon receiving a certificate of incorporation from the Registrar of Companies (ROC).

Companies Based on Liabilities

1. Companies Limited by Shares: These companies offer their shares to the public through initial public offerings (IPOs). Known as limited companies in India, and public limited companies (PLCs) in the UK, they are also referred to as "Inc" in the US. Shareholders' liability is limited to the amount unpaid on their shares.

2. Companies Limited by Guarantee: In these companies, the memorandum of association (MoA) specifies the amount of capital certain members agree to contribute in the event of dissolution. These companies are typically found in non-profit organizations such as clubs, sports groups, workers' cooperatives, and student unions.

3. Unlimited Companies: This type of company has no limit on member liabilities. If the company is wound up, it can use all shareholders' assets to pay off debts, covering the company’s entire debt.

Companies Based on Members

1. One-Person Companies (OPCs): These companies have only one shareholder, who may also serve as the director. They differ from sole proprietorships as they are separate legal entities from their sole members and do not require a minimum share capital.

2. Private Companies: The articles of association (AoA) of these companies restrict the transferability of shares. Members, who can be current or former employees, cannot freely transfer their shares. Private companies must have at least two members but no more than 200.

3. Public Companies: Unlike private companies, public companies allow free transfer of shares among members. They require at least seven members, with no upper limit, and their shares can be held by the general public.

Companies Based on Control

1. Holding and Subsidiary Companies: A holding company owns all or most of the shares of another company, known as a subsidiary. For example, Tata Sons Limited is the holding company of the Tata Group.

2. Associate Companies: These companies are significantly influenced by other businesses, typically defined as owning at least 20% of the associate company's shares.

Size and Scale of Companies

1. Companies Based on Annual Turnover:

   • Tiny (
   • Small (Rs. 10–100 crores): 12 companies
   • Medium (Rs. 100–500 crores): 8 companies
   • Large (Rs. 500–1000 crores): 5 companies
   • Very Large (>Rs. 1000 crores): 5 companies

2. Companies Based on Age:

   • 2000 and later: 9 companies
   • 1995–1999: 17 companies
   • 1990–1994: 8 companies
   • Before 1990: 5 companies

Sectoral Distribution

1. Agriculture and Allied Sector: The agriculture sector contributes 18.3% to India's GDP (FY2022-23). India is the largest milk producer, contributing 24% of global production, and is a major producer of millet and sugar.

2. Animal Husbandry and Dairying: India is the largest producer of buffalo meat, the second-largest producer of goat meat, and the third-largest producer of eggs globally. The Indian poultry industry was valued at $30.46 billion in 2023.

3. Auto Components: The auto components industry is expected to reach $300 billion by 2026, contributing 2.3% to India's GDP.

4. Automobile: The automobile sector accounts for 7.1% of India's GDP, generating employment for 37 million people.

5. Aviation: India is poised to become the third-largest aviation market by 2024, with significant growth in passenger traffic and domestic aircraft movements.

6. Ayush: India is the second-largest exporter of Ayurveda and alternative medicine, with a service sector size of $6 billion.

7. Biotechnology: India is emerging as the world’s largest bioeconomy, with over 800 core biotech companies and significant revenue generation from vaccines.

8. Defence Manufacturing: India’s defence production value reached INR 21,083 crores for FY 2023-24, with exports hitting an all-time high of $2.63 billion.

9. Education: India aims to become a $313 billion education market by 2030, with the second-largest education system globally.

Start-up Ecosystem

India boasts the third-largest startup ecosystem in the world, with approximately 50,000 startups in 2018. This ecosystem is growing at a consistent annual rate of 12-15%. The Indian startups have been successful in raising substantial funding from global and domestic investors.

Growth in the Startup Ecosystem:

• The number of incubators and accelerators has grown by 11% year-on-year.
• The proportion of women entrepreneurs has increased to 14%.
• Startups have created an estimated 40,000 new jobs, with Bangalore ranked as one of the world’s fastest-growing startup cities.

Employment and Economic Impact

Companies in India play a crucial role in job creation and economic growth. Large firms contribute to 20% of formal sector employment and 40% of exports. Micro, Small, and Medium Enterprises (MSMEs) are the second-largest source of employment, employing 123.6 million people between 2020 and 2023. Tech startups also contribute significantly to employment and workforce upskilling.

MSMEs:

• Contribute 30% to India's GDP.
• Account for 45% of industrial output and 40% of exports.

Large Firms:

• Drive 10 times more productivity than mid-sized companies.
• Contribute significantly to exports and formal sector employment.

Tech Startups:

• Create new employment opportunities in various fields.
• Contribute to upskilling the workforce.

Challenges and Opportunities

Despite its significant contributions, the corporate sector in India faces several challenges:

1. Regulatory Procedures and Delays: Lengthy procedures and delays in obtaining clearances for new projects hinder timely completion.

2. Excessive Government Control: Overregulation discourages increased production and leads to black marketing and hoarding.

3. Inadequate Diversification: The private sector's involvement in key infrastructure sectors has been historically restricted.

4. Lack of Finance and Credit: Small-scale units face difficulties in securing funds, exacerbated by the rise in non-performing assets (NPAs).

5. Challenges of Starting a Business: Establishing a business in India is a lengthy and costly process.

6. Poor Implementation of Law: The stringent provisions of The Companies Act 2013 have hindered its effective implementation.

7. Land Acquisition Issues: Legal complexities and fragmented land holdings complicate land acquisition.

8. Electricity Supply: The demand for electricity often exceeds supply, affecting manufacturing and service sectors.

9. Infrastructure Strain: Despite development efforts, infrastructural constraints remain a significant challenge.

10. Challenges in Exports and Imports: Bureaucratic hurdles and complex regulations impede international trade.

11. Skill Gap: Finding skilled workers is a significant challenge, and complex employment laws need simplification.

Conclusion

India's corporate sector is a crucial driver of economic growth and job creation. The diverse array of companies, from statutory and registered to those based on liabilities and membership, reflects the dynamic nature of the Indian economy. The start-up ecosystem, in particular, has shown remarkable growth, contributing significantly to innovation and employment.

However, the sector faces numerous challenges, including regulatory delays, excessive government control, inadequate diversification, and difficulties in securing finance. Addressing these issues through streamlined regulatory processes, reduced government control, improved access to finance, and enhanced infrastructure is essential. By overcoming these obstacles, India can strengthen its corporate sector, fostering sustainable economic growth and enhancing its global market presence.

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Article Compiled by:-

~Jamil Riyaz Ansari

(LegalMantra.net Team)

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