How to Register a New
Company in India? What is Registering Process your company under the right
business structure is an important decision. You need to find out the pros and
cons of various structures.
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 them-selves 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.
How Many Kinds of Business Structures in India?
Let’s try and know the kinds
of business structures are available in India. Here is an option of some of
them:
1. OPC (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.
2. LLP (Limited Liability Partnership)
A separate legal entity,
in an LLP the liabilities of partners are only limited only to their agreed
contribution.
3. (PLC) (Private Limited Company)
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. PLC (Public Limited Company)
A PLC is a voluntary
association of members which is incorporated under company law. It has a
separate legal existence and the liabilities 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.
Here is a comparative
list of the popular business structures in India.
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 mandatory 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.
Let’s take a look at some
important questions every entrepreneur must ask himself before he/she finally decides
upon a business structure.
1. 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.
2. 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
3. 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.
4. 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.
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.
5. 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:
1. A Digital Signature Certificate (DSC)
2. A Director Identification Number (DIN)
3. Registration on the MCA Portal or New user
registration
4. Certificate of
Incorporation
With this, we have
covered the basics of how to register a company. If you still need help
registering your company, don’t stress over it, and let our team of
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