Picking the right company structure for your business is as important as any other business-related activity. The right business structure will allow your enterprise to operate efficiently and meet your required business targets. In India, every business must register themselves as part of the mandatory legal compliance. Before we learn how to register a company, let’s try and understand the types of business structures in India.
What are the types of business structures in India?
Let’s try and understand the types of business structures available in India. Here is a list of some of them:
1. One Person Company (OPC)
Recently introduced in the year 2013, an OPC is the best way to start a company if there exists only one promoter or owner. It enables a sole-proprietor to carry on his work and still be part of the corporate framework.
2. Limited Liability Partnership (LLP)
A separate legal entity, in an LLP the liabilities of partners are only limited only to their agreed contribution.
3. Private Limited Company (PLC)
A company in the eyes of the law is regarded as a separate legal entity from its founders It has shareholders (stakeholders) and directors (company officers). Each individual is regarded as an employee of the company.
4. Public Limited Company (PLC)
A PLC is a voluntary association of members which is incorporated under company law. It has a separate legal existence and the liability of its members are limited to shares they hold. You can choose what business structure suits your business needs best and accordingly register your business. Here is a comparative list of the popular business structures in India.
Other forms of business structures include Sole proprietorship, Hindu Undivided Family, and Partnership firms. Please bear in mind, these structures do not come under the ambit of company law.
Why is it important to choose the right business structure?
It is important to choose your business structure carefully as your Income Tax Returns will depend on it. While registering your enterprise, remember that each business structure has different levels of compliances that need to be met with. For example, a sole proprietor has to file only an income tax return. However, a company has to file an income tax return as well as annual returns with the registrar of companies.
A company’s books of accounts are to be mandatorily audited every year. Abiding by these legal compliances requires spending money on auditors, accountants and tax filing experts. Therefore, it is important to select the right business structure when thinking of company registration. An entrepreneur must have a clear idea of the kind of the legal compliances he/she is willing to deal with.
While some business structures are relatively investor-friendly than others, investors will always prefer a recognised and legal business structure. For example, an investor may hesitate to give money to a sole proprietor. On the other hand, if a good business idea is backed by a recognised legal structure (like LLP, Company, etc) the investors will be more comfortable making an investment.
How to choose a business structure while applying for company registration in India?
Let’s take a look at some important questions every entrepreneur must ask himself before he/she finally decide upon a business structure. i. How many owners/partners will your business have? If you are a single person who owns the entire initial investment required for the business, a One Person Company would be ideal for you. On the other hand, if your business has two or more owners and is actively seeking an investment from other parties a Limited Liability Partnership (LLP) or Private Limited Company would suit you best. ii. Should your initial investment determine your choice of business structure? The answer to that question is – Yes if you want to spend less initially, it would be wise to go in for a Sole Proprietor, or a HUF or a Partnership. But, if you are sure that you will be able to recover the setup and compliance costs, you can opt for a One Person Company, LLP or a Private Limited Company iii. Willingness to bear the entire liability of the business Business structures like sole proprietor, HUF, and partnership firm have unlimited liability. This means, in case of any default in loans, the entire money will be recovered from the members or partners in profit sharing ratio. The risk to personal assets is high in these cases. Whereas, Companies and LLPs have a limited liability clause. This means that the liability of its members is restricted to the amount of contribution made by them or the value of shares each member holds. iv. Income Tax Rates Applicable to businesses The income tax rates applicable to a sole proprietorship and a HUF are the normal slab rates. In case of a sole proprietorship, the business income is clubbed with the individual’s other income. But in the case of other entities like partnership and company a tax rate of 30% is applicable. v. Plans of getting money from investors As mentioned earlier, it is difficult to get investments when your business structure is unregistered. Entities like LLP and Private Limited Company are trusted when it comes to investment. Make sure you choose the right structure, seek the help of an expert so that you register under proper guidance.
4. How to Register a Company in India?
Registering a company in India is now a simple 4-step process. Here is what you’ll need to acquire: i. A Digital Signature Certificate(DSC) ii. A Director Identification Number (DIN) iii. Registration on the MCA Portal or New user registration iv. Certificate of Incorporation With this, we have covered the basics of how to register a company. If you still need help registering your company, don’t stress over it, and let our team of experts guide you.
A Public Limited Company under Company Act 2013 is a company that has limited liability and offers shares to the general public. This company is strictly regulated and is required to publish its true financial health to its shareholders from time to time. Read here to know more.
Companies started for future projects or to hold assets/intellectual properties without having significant accounting transactions and companies that have not filed their annual returns for two consecutive years are called dormant companies. Know more about these here.
Gumasta License is a mandatory registration required for doing any kind of business in the state of Maharashtra. This is a certificate which provides you authority to do your business at a particular place and to be recognized by Government or Bank. Read more about Gumasta License here.
In this article, we enlist all the important documents required for Sole Proprietorship Registration in India. Also, proprietor can use their PAN for opening bank accounts as also Income Tax filing, and for obtaining license/registrations in the name of the firm.
A partnership firm is where two or more persons who can come together and share the profits in agreed ratio, Steps to register in India, documents required for registration, why it is important to register
Limited Liability Partnership / LLP incorporates the benefits of both a partnership firm and a company into a single form of organization., Documents required for incorporation, steps for incorporation of LLP in India
In India a business can be registered primarily under 5 structures. You can start as a private limited company, one person company, limited liability company, general partnership or proprietorship firm.