New Business Registration In India
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New Business Registration Type
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.
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.
An old form of business, traditionally it’s not widespread and relevant. You can start a partnership firm by just signing a partnership deed. Even its registration is not mandatory, however, is necessary as an unregistered firm can not recover beyond Rs. 100 from its debtors.
LLP 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.
It is for small business with a low budget, like small shops may open their store as a proprietorship concern. It’s a one-person show where all profits and loss goes to the proprietor alone. Proprietorship business cannot be registered as such. However, all other registration may apply.
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. |