India is rapidly becoming a start-up capital of the world. With such a massive population, there are immense business opportunities. Every year hundreds of entrepreneurs launch their Businesses to utilize these opportunities.
So if you have a great idea and you are planning to start a Business in India, now is a perfect time. But before you begin your journey, it’s vital to understand various Business structures in India. You can choose the best Business registration from the plethora of them available in the Indian legal system. Also, there are many websites providing online business registration these days.
You can get your business registered at the comfort of sitting at your own home. Websites like Palankarta can help you with online business registration as well as registration at one of their local offices in Mumbai. Although, the number of online registrations during Covid is rapidly increasing as people are avoiding visiting offices physically.
Types of company registration in India
Let’s have a look at the different types of company registration in India.
1. Sole Proprietorship Company
It is one of the most common Business structures in India. A single individual owns, manages and operates such kind of business. This individual is known as the Sole Proprietor of the Sole-Proprietorship firm. As per the laws, there is no difference between the Sole-Proprietor and the Sole Proprietorship company. Hence any loss or profit for the company is also for the proprietor.
One does not have to undergo any registration process for this type of Business. This type of company is well suited for micro and small enterprises like shop owners, cottage industries and small traders due to its minimum compliances. In a Sole Proprietorship, the owner has unlimited liabilities. So in case of any financial crisis, his/her personal assets can be used to set-off the debts.
The benefits of a sole proprietorship company include
1) Everything is managed by a single person.
2) This type of business is cheaper to setup.
3)The compliances required are lesser compared to other types of business.
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2. Partnership Firm
This is the second most prevalent Business structure in India. When a group of like-minded People (known as Partners) come together to start a Business by making some contribution, it is known as a Partnership firm. The minimum required members for this business structure are two and this type of business can be started with or without registration. Although it is recommended to register the firm to avail the exclusive rights available for the registered companies.
A Partnership firm is governed by a written legal agreement which is made under the Indian Partnership Act of 1932. This agreement is known as a Partnership Agreement. This document defines the roles, profit sharing ratio and responsibilities of each partner in the Partnership firm. Similar to the sole proprietorship business structure, any profit or loss is shared among the managing partners.
In case of any financial crisis, every Partner is personally liable and hence his/her personal assets can be used to set-off any outstanding dues.
It is a must to obtain a PAN for a Partnership firm. Although it is not mandatory to register your Partnership Firm with the Government, it is advisable to do so for availing of various Government benefits.
3. Private Limited Company
This is the most preferred type of Company registration by small Indian Businesses. A Private Limited Company is registered under the Companies Act 2013.
Minimum 2 directors are mandatory for establishing a Private Limited Company. The number of members can be anywhere between 2 to 200. The members of the private limited company are the respective shareholders and the total capital equals to the value of shares held by each member. One of the main differences between a private limited company and a partnership firm is that the business assets are considered separately from the private assets of the owners.
Private Limited Company comes with multiple perks. Let’s take a look at a few of them:
- The Liability of every Member is limited to the unpaid amount of the shares they are holding.
- Private Limited Company enjoys a separate legal status in the eyes of Law
- Management and Ownerships are separated, boosting the efficiency of the Company
- They have a better Market reputation than many other business structures such as sole proprietorship or partnership firms.
Although there are some drawbacks too, like Mandatory Audit, More compliances and more financial burden.
4. Limited Liability Partnership
The concept of LLP is relatively new in India. It was introduced with the Limited Liability Partnership Act, 2008. This structure was introduced to offer the flexibility of a Partnership firm and limited liabilities of a Private Limited Company. It also enjoys a separate legal status like a registered Company.
One of the major benefits of LLP is that under any severe loss or financial crisis, the private assets of company members are not at risk. The other benefits of LLP registration are that its formation is less expensive and no minimum capital contribution is required. Under this registration, the Partner’s liability is in direct proportion to his/her Financial contribution in the LLP. Hence it has become a more preferred business structure for entrepreneurs than the partnership business structure.
If you want to register your firm as an LLP, you will have to submit the form FiLLip with the Registrar of the state where your registered office is located.
5. One Person Company
This new and extremely efficient form of Business registration is governed by the Companies Act 2013. This Business structure is a unique blend of a Private Limited Company and a Sole-Proprietorship. One of the major distinguishing features of OPC is that only one member is allowed in the One Person Company Registration model.
This structure is specifically designed to benefit the entrepreneurs who want to avail the benefits of a Private Limited Company but with full control of the Business. The owner himself acts as a director along with one Member of Indian origin.
An OPC offers multiple benefits like:
- Separate Legal status like a Private Limited Company
- Complete Ownership like a Sole-Proprietorship
- Perpetual Existence in case of death or inability of the Director to perform his/her duties
- Limited Liability to the shareholders.
- Can be registered and operated by a single person.
6. Public Limited Company
A Company whose shares can be traded in the open market and offers limited Liabilities to its shareholders is known as a Public Limited Company. This ensures that the shareholders are only responsible for the losses amounting to the capital invested by them in the company and their personal assets can not be involved during any financial crisis. Such a Company is managed as per the Companies Act 2013.
A Public Limited Company is strictly monitored by various Government authorities. It is bound to release its detailed financial statements to the general public. For a Public Limited company, there should be at least 7 members and 2 directors.
There is no limitation on the number of shares that can be traded for such companies. Anyone can obtain the shares of such a company via Initial Public Offering (IPO) or via trading on the Stock market.
There are multiple benefits to this Business structure.
Let’s take a quick look:
- A Public Limited Company can raise funds easily as the shares are distributed publically..
- It has more credibility and brand value
- The risk for loss and failure is distributed among a lot of people rather than being concentrated on the directors.
- It has great room for expansion and growth, both nationally and internationally.
7. Section-8 Company
Section-8 companies are those that are indulged in Charity, Non-Profiteering and Social work activities. These companies are managed as per the Companies Act 2013. The liabilities of the members of such Companies are limited.
As per the law companies need to satisfy the following criteria to fall under this category:
- Such Companies must be established for the Social or Charitable cause.
- The income of such companies should be utilized towards the charitable causes
- Section -8 Companies are not allowed to offer a dividend to any of their Members.
We can conclude this article by saying that the Indian legal system allows a variety of Business structures depending upon the requirements of the members and the type of business. But we would recommend you to be cautious and perform a detailed analysis before you chose any one of them, depending on your business goals.