Different Types Of Companies In India
Introduction:-
Any first-time entrepreneur is confused about type of company registration to choose for starting a company. Often one is confused. Registering a company in India is easy and can be done completely online. We will cover all you need to know about starting a company and choosing the best entity for you including the documents you will require.
Picking the right company structure for your startup is as important as any other business-related activity. The right business structure will allow your startup 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.
Types Of Legal Entities In India:-
There are various forms of business entities in India:
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Private Ltd Company
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One Person Company (OPC)
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Public Ltd Company
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Unlimited Company
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Sole proprietorship
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Joint Hindu Family business
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Partnership
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Cooperatives
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Limited Liability Partnership(LLP)
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Liaison Office
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Branch Office
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Project Office
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Subsidiary Company
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Private Ltd Company
Private Company:
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Restricts the right of the shareholders to transfer their shares.
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Has a minimum of 2 and a maximum of 50 members.
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does not invite the public to subscribe to its share capital.
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Must have a minimum paid up capital of Rs. 1 lakh or such a higher amount which may be prescribed from time to time.
One Person Company:
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.
Public Ltd Company:
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It allows the shareholders to transfer their shares.
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Has a minimum of 7 members, and for maximum, there is no limit.
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it invites the general public to subscribe to its shares.
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Must have a minimum paid up capital of Rs 5 lakh or such a higher amount as may be prescribed from time to time.
Unlimited Company:
Unlimited Company is a form of business organization under which the liability of all its members is unlimited. The personal assets of the members can be used to settle the debts. It can at any time re-register as a limited company under section 32 of the Companies Act.
Sole proprietorship:
A sole proprietorship is a form of a business entity where a single individual handles the entire business organization. He is the sole recipient of all profits and bearer of all loses. There is no separate law that governs sole proprietorship.
Joint Hindu Family:
Joint Hindu Family is a form of business organization wherein the members of a family can only own and manage the business. It is governed by Hindu Law.
Partnership:
The partnership is “the relation between persons who have agreed to share the profits of the business carried on by all or any one of them acting for all”. It is governed by the Indian Partnership Act 1932.
Co-operatives:
Co-operatives are a form of voluntary organization, wherein the members work together for the promotion of the interests of its members. There is no restriction on the entry or exit of any member. It is governed by the Cooperative Societies Act 1912.
Limited Liability Partnership:
Under LLP (Limited Liability Partnership) the liability of at least one member is unlimited whereas rest all the other members have limited liability, limited to the extent of their contribution in the LLP. Unlike a general partnership, this kind of partnership does not get terminated by the death or insolvency of the limited partners. It is governed by the Limited Liability Partnership Act of 2008.
Liaison Office:
Liaison Office is a kind of representative office which is set up to understand the business and investment environment. It is barred from taking up any commercial/industrial/trading activity and its role is limited to aggregation of information and promotion of exports/imports. It has to maintain itself out of inward remittances received from the parent company.
Branch Office:
Foreign companies which are into manufacturing and trading activities abroad are permitted to set up branch offices in India for various purposes like the rendering of professional and consultancy services, export/import of goods etc. Branch offices are not permitted to carry out manufacturing activities on their own. RBI is the statutory body that grants permission to foreign companies for setting up branch offices in India.
Project Office:
Foreign companies can set up temporary project offices in India for carrying out activities related to that specific project.
Subsidiary Company:
In India, the sectors where 100% foreign direct investment is permitted their foreign companies can set up a wholly-owned subsidiary.
The wholly-owned subsidiary can be either of the following business entities:
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Private Ltd Company
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Public Ltd Company
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Unlimited Company
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Sole Proprietorship
*Please bear in mind, Sole proprietorship, Hindu Undivided Family, and Partnership firms these structures do not come under the ambit of company law.
Here is a comparative list of the popular business structures in India.
Making The Right Choice:-
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 compliance's 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 mandatory audited every year. Abiding by these legal compliance's 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 compliance's he/she is willing to deal with.
While some business structures are relatively investor-friendly than others, investors will always prefer a recognized 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 recognized legal structure (like LLP, Company, etc) the investors will be more comfortable making an investment.
Ask Yourself:-
Let’s take a look at some important questions every entrepreneur must ask himself before he/she finally decide upon a business structure.
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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.
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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
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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.
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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.
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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.
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:
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A Digital Signature Certificate(DSC)
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A Director Identification Number (DIN)
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Registration on the MCA Portal or New user registration
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Certificate of Incorporation
With this, we have covered the basics of how to register a company.
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