Type of Business Registration in India
While starting your business, the most important decision is to decide the appropriate business structure, such as Private Limited, LLP, OPC etc., for your startup. The organizational structure you choose will determine the taxes you have to pay, the compliance measures you need to follow and the eligibility criteria you need to meet. Hence, one of the most vital decisions an entrepreneur can make is deciding what type of business registration to do in India
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Type of Business Structure Avaialble in India
Company registration is the primary process by which business owners establish or incorporate their company. Since there are several types of companies in India, entrepreneurs have to ensure they choose a business type that suits their operations. In India, the Companies Act, 2013 lays down guidelines for different types of company registration. Hence, here’s a quick look at the Business type list for India.
A Private Limited Company is the most preferred form of business for Startup India, It is easy to incorporate and manage. Angel investor and any other long-term investor insist on a Company for making the investment.
Also, the personal and business assets of the members are considered separate, allowing for better protection and security. The shares of such a company cannot be publicly traded or transferred. As per the Companies Act, 2013 to be eligible for this type of business registration, the private limited company must meet the following criteria;
- Minimum of two and maximum of fifteen directors
- At least one of the directors must be an Indian resident
- Minimum of two and maximum of 200 shareholders or members
- Additionally, an authorised capital fee amounting to at least INR 1 Lakh
- Must have a registered office address within India
The newest entry into the different types of company registration allowed in India, OPCs are great for small businesses. Additionally, it became a part of the Companies Act 2013, to help entrepreneurs who wish to run a business single-handedly. Since such a firm type has separate legal status, entrepreneurs get the benefit of liability protection without having to partner with anyone else. Furthermore, since they involve only one individual, this type of firm registration is easy to incorporate and regulate. Moreover, this essentially serves as a combination of the Sole-Proprietorship and Company model of business entities. Additionally, to be eligible for this type of firm registration, the One Person Company must meet the following criteria;
- Minimum authorised capital amounting to at least INR 1 Lakh.
- Further, an individual must be a natural Indian Citizen and resident
- The promoter must appoint a nominee during the incorporation
- Additionally, Financial businesses cannot incorporate as an OPC.
- Further, should convert to a Private Limited Company if paid-up capital exceeds INR 50 lakhs or turnover exceeds INR 2 crores.
Limited Liability Partnership is an advancement over the traditional partnership firms, with some characteristic features of a company, the limited liability. The process of incorporation of the LLP is complicated and at the same time, it lacks the potential to grow and is not preferred for funding. Moreover, to be eligible for this type of business registration, the LLP must meet the following criteria;
- Minimum authorised capital amounting to INR 1 Lakh
- At least one of the Designated Partners must be an Indian resident
- Minimum of two partners and no cap on the maximum number
- At least one individual partner, if the rest are corporate bodies
- No required for shared capital since each partner must have an agreed contribution
This is another type of business entity wherein a single individual handles the running of the business. However, in this firm type, the company and the owner are considered as a single entity, making them solely responsible for profits and losses. Moreover, since the registration bears the name of the owners, tax filings and accounting reports will also bear the name of the owner, leading to unlimited business liability. As a result, this type of company does not have a separate business registration process.
In such business entities, the handling of the operations is handled by partners, who have agreed to their role and share in profits. Hence, the functions, duties, powers, and number of shares held are all clearly defined in a verbal contract known as the Partnership Deed. Additionally, these businesses fall under the purview of the Indian Partnership Act, 1932. Partnership firms can function with or without a license as long as they have a valid and registered Partnership Deed. However, most partnerships do register themselves as that gives them additional rights. Moreover, to be eligible for this type of firm registration, the partnership must meet the following criteria;
- Minimum of two and maximum of fewer than ten partners
- Moreover, must have a registered office address within India
- Additionally, must have a registered Partnership Deed signed by all partners
Comparison among different type of Business Registration Options in India
Features | Private Limited Company | OPC | LLP | Partnership | Sole Proprietorship |
|---|---|---|---|---|---|
Applicable Law | Company Act 2013 | Company Act 2013 | LLP Act 2009 | Partnership Act 1932 | No Law |
Number of members | 2 - 200 | 1 | 2 - Unlimited | 2 - 20 | 1 |
Number of Directors /DP | 2 - 15 | 1-15 | 2 - Unlimited | 1-20 | 1 |
Formation | Through ROC | Through ROC | Through ROC | Through Agreement | Easy |
Tax Benefits | The income tax rate for companies vary from 15 % to 22% | The income tax rate for companies vary from 15 % to 22% | LLP Income Tax Rate is 30% on its profits | Partnership firms are taxed at 30% on its profits | For a small business with low turnover, there is the benefit of individual tax slabs. |
Statutory Compliance | High | High | Low | Low | Minimum |
Foreign Investment (FDI) | FDI in case of a Private Limited Company is available under the automatic route. | FDI is not allowed in One Person Company | FDI in LLP Is permitted at par with the companies | FDI not Allowed | FDI not Allowed |
Separate Legal Entity | A Company is a separate legal entity separate from its promoters | An OPC is a separate legal entity separate from its promoters | An LLP is a separate legal entity separate from its promoters | A Partnership is a legal entity but not different from partners | The proprietor and the proprietorship business is the same thing |
Limited Liability | Liability Limited - Shareholders of a Company are bound to pay only up to the capital they have subscribed to the company. | Liability Limited - In OPC, unlike a proprietorship, the shareholder cannot be asked to pay beyond his subscribed capital | Liability Limited - The partners of an LLP can be called upon to pay only up to the amount of capital they subscribed to. | Liability Not Limited - There is no protection of limited liability, even the personal properties of partners are at risk for losses of business | Liability Not Limited - The proprietor is the whole sole of the business, and his liability to the debts or losses of proprietorship is unlimited. |
Ownership Transferability | The shareholding of a Pvt Ltd Company is easily transferable | OPC Shares can be transferred to new shareholder along with the nominee | In LLP contribution/share of a partner can be transferred with the consent of all other partners. | Not Possible, every admission or removal of a partner amounts to the new firm. | Not Applicable |
Perpetual Existence | A Company exists beyond the life of its owners /shareholders. After the death, the shares transmits to legal heirs | OPC Continues to exist even after the death of its only shareholder, as it passes to the nominee. | The LLP also have perpetual existence and exists beyond the life of the designated partner | No perpetual existence, with the death of a partner, the partnership ends. | No perpetual existence, with the death of the proprietor, it ends. |