The question of what is the difference between a shell company, dormant company, small company, subsidiary company, and foreign company in India often arises. Each type of company has its own unique characteristics and understanding them is important in order to properly manage a business in India.

Shell Companies

A shell company is a business entity that has no active operations or assets. It is set up solely for the purpose of carrying out financial transactions and is used to facilitate the transfer of funds between individuals and businesses. Typically, shell companies are used to hide the identity of the true owners of assets and to protect the person who holds the assets from the government or creditors. Shell companies are not allowed to trade or do any other business operations in India.

Dormant Companies

A dormant company is one that does not have any significant operations or assets but still has to comply with the registration and other filing requirements of the Companies Act. Dormant companies are usually set up to hold assets or provide services to other companies. They are not allowed to conduct any other business activities.

Small Companies

Small companies are companies that have a turnover of up to Rs. 40 Crores and the paid-up capital does not exceed Rs. 4 Crores (as amended by Ministry of Corporate Affairs via its notification on 15th September ‘2022).

These companies are required to comply with certain rules and regulations that are different from the general companies. Small companies are exempt from certain provisions of the Companies Act, due to which regulation part of such companies become easier and hassle free.

Subsidiary Companies

Subsidiary companies are companies owned by another company, known as the parent company. These companies are set up to conduct business activities related to the parent company. Subsidiary companies are required to abide by the rules and regulations of the Companies Act, and are subject to the control of the parent company.

Foreign Companies

Foreign companies are companies that are incorporated outside India, but are permitted to conduct business activities in India. These companies have to comply with the rules and regulations of the Companies Act. Foreign companies can be publicly listed or privately held, and they are subject to the control of their parent company.

The differences between a shell company, dormant company, small company, subsidiary company, and foreign company in India are many. Understanding the different requirements and regulations applicable to each type of company is important for setting up and running a business in India.