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.
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 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.
Comparative List of Different Types of Business Structures in India
Here is a comparative list of the popular business structures in India.
|Company type||Ideal for||Tax advantages||Legal compliances|
|Limited Liability Partnership||Service-oriented businesses or businesses that have low investment needs||Benefit on depreciation||Business tax returns to be filed ROC returns to be filed|
|One Person Company||Sole owners looking to limit their liability||Tax holiday for first 3 years under Startup India Higher benefits on depreciation No tax on dividend distribution||Business returns to be filed Limited ROC compliance|
|Private Limited Company||Businesses that have a high turnover||Tax holiday for first 3 years under Startup India Higher benefits on depreciation||Business tax returns to be filed ROC returns to be filed An audit is mandatory|
|Public Limited Company||Businesses with a high turnover||Tax exemptions under||Business tax returns to be filed. Mandatory Audits|
How to Register a Company in India?
Registering a company in India is now a simple 4-step process-
Step 1: Digital Signature Certificate (DSC)
As the registration process of the company is completely online, Digital signatures are required to file the forms on the MCA portal. DSC is mandatory for all the proposed directors and the subscribers of the memorandum and articles of association.
Step 2: Director Identification Number (DIN)
The Director Identification Number (DIN) is an identification number for a director and it has to be obtained by anyone who wants to be a director in a company. The DIN of the proposed director along with the name and the address proof is to be provided in the company registration form.
Step 3: Registration on the MCA Portal
To apply for company registration, the SPICe+ form is to be filled and submitted on the MCA portal. To fill the SPICe+ form and submit documents, the Director of the company has to register on the MCA portal. After registration, the director can log in and will obtain access to the MCA portal services which include filing e-forms and viewing public documents.
Step 4: Certificate of Incorporation
Once, the registration application is filled and submitted along with the required documents, the Registrar of Companies will examine the application. Upon verification of the application, he will issue the Certificate of Incorporation of the Company.
With this, we have covered the basics of how to register a company.
Documents required for Company Registration
In India, registration of a company can not be done without proper proof of identity and proof of address. Proof of identification and address would be required for the incorporation of all the company’s directors and shareholders.
All the particulars of the directors and shareholders is to be submitted to the registrar at the time of registration. Pan Card/Aadhar card/Diving license/passport can be submitted as proof of identity. Latest Telephone Bill /Electricity Bill/ Bank Account Statement is to be submitted for proof of address.
The organisation must have a registered office in India for online business registration in India. A recent copy of an energy bill or the property tax receipt or water bill must be sent to confirm admission to the registered office. In addition to the tenancy/rental agreement, the maintenance bill or the sale deed or a letter or NOC from the landlord with his/her permission to use the office as the company’s registered office is accepted.
Along with these documents the DIN and DSC of all the directors is also to be submitted. These documents mentioned are the general documents which are to be submitted for registration of LLP, One Person Company, Private Limited and Public Limited Company.
For more details about documents required for incorporating a private company, read our article on documents required for private limited company registration.
For more details about documents required for incorporating a Public company, read our article on documents required for public limited company registration.
For more details about documents required for incorporating a LLP, read our article on documents required for LLP registration.
Benefits of Company Registration in India
A company registration provides many advantages. A licensed company makes it genuine, and enhances the business’ credibility.
- Protects against personal obligation, and defends against other threats and losses.
- Builds goodwill and also supports more customer attraction
- Gives reliable investors bank credits and good investment with ease.
- Provides cover of the responsibility to protect the company’s assets
- Bigger commitment to wealth and greater stability
- Increases the ability to develop and grow large
For detailed understanding about the advantages of obtaining a company registration, read our article on Advantages of Company Incorporation.
Name and Capital of the Company
- Selection of Company Name
The applicant needs to use the RUN (Reserve Unique Name) web services by MCA for reserving the name of the company. The type of entity and one proposed name for the company is to be entered for reserving the name of the company. The proposed name should not be similar to the existing name of any company or LLP or Trademark. If the name is rejected by the Registrar, the applicant needs to file another RUN form and pay the prescribed fees for approval of the name.
An OPC should have the name in the form of “XYC (OPC) Private Limited”. Similarly, a private company should have the name in the form of “XYZ Pvt. Ltd.” and a public company name in the form of “XYZ Limited”.
- Capital of the company
There is no requirement of minimum paid-up capital to start a private limited company or a one-person company. However, the public limited company must have a minimum paid-up capital of Rs.5 lakh. The paid-up capital means the the amount of money a company has received from shareholders in exchange for shares of the company. It is created when a company sells its shares in the market directly to investors, usually through an Initial Public Offering (IPO).
The authorised capital of any company must be Rs.1 lakh. The authorised capital means the maximum amount of share capital that the company is authorised by its Memorandum of Association to issue to its shareholders. The authorised capital must be mentioned in the MoA.
Compliances to be followed by the Company
Once, the company is registered there are certain compliance to be followed by the company annually. The company needs to follow compliances such as the Company is required to appoint its first auditor within 30 days of incorporation In the first board meeting. Every company must conduct minimum 4 board meetings during the calendar year at stipulated intervals. It has to maintain and file of profit and loss account, annual return and balance sheet every financial year together with an auditor’s report before the due date with the Registrar of Companies. Every company is required to maintain certain Statutory Registers.
For more details about compliances to be followed by the company, read our article on Compliances under the Companies Act 2013.
The company also file certain annual forms with the Registrar of Companies. Details of all forms along with the due date of filing these forms are given in our article ROC Compliance Calendar.
Frequently Asked Questions on Company Registration
Where can I register my company?If you intend to register a new company in India, you must submit an application to the Ministry of Corporate Affairs (MCA). You make the application online at MCA portal remotely too. For registration, you’ll need a Digital Signature Certificate(DSC), and Director Identity Number(DIN), among other things.
What happens if my company name is already taken?The Ministry of Corporate Affairs (MCA) that maintains a record of registered company names, you’ll have to access that directory and check if your company name is already registered. If the company name appears in the company Registration directory, you’ll have to choose another name. If you have already made an application, you’ll have to make another application for a different name that is previously not registered.
Can a foreign national be a director of a company?Yes, as per the Indian company law, a foreign national can be a director of a company registered in India. However, he must fulfil all the criteria laid down in the Act. The most important being allotment of a Director Identification Number (DIN).
Any person, including a foreign national, appointed as a Director cannot act in the capacity of a Director unless he/she gives it formally in writing. This can be done by filing Form DIR-2 within 30 days of being appointed as the director.
How many days does it take to register a company?The new changes brought about by the MCA have made it easy to register companies of any nature with the government. Provided that you have all your documents in place, it can take anywhere between 10 – 15 days to register your company formally.
Is a physical presence of a person needed for company registration?The entire process is completed online, so you don’t have to be present at any particular place for registration. A scanned copy of the documents must be submitted via mail. At the business address they receive the company incorporation certificate from the MCA.
How do I check if my company is registered or not?You can check the status of the company registration on the MCA website. To check the status of your company, you need to go to the ‘MCA Services’ tab and select the ‘View Company/LLP Master Data’ from the drop-down list. Then enter the company’s CIN and click ‘Submit’. The exact status of your company will be displayed.
Is the company registration process completely online in India?Yes, the company registration is completely online. A company or a LLP can be registered only through the MCA portal. The scanned documents of the company/LLP are sent by mail to the MCA and they are processed at the Central Registration Centre (CRC) which acts as a dedicated backoffice for Company and LLP Registration process. Upon completion of registration, the company/LLP receives a digitally signed Certificate of Incorporation which can be verified by all the stakeholders on the MCA website.