Company registration in India & its procedure
Registering a business under the right authority following the structural method is important for any startup business in India. The business could be from engineering to design, development, marketing to sales and support or any other business activity. The selection of the right business structure and strategy will help the business to operate efficiently and achieve its business targets and objectives which has been set up by different sections of the business
In order to register a company, the required business has to channelize through legal compliances. Once these concepts are clear you need to understand the detailed procedure to incorporate a company
Types of structures in India:
Sole Proprietorship: You will be the whole and soul of the business. You will be solely responsible for all the business decisions taken.
Hindu Undivided Family (HUF): Members of the family can collectively form a HUF. As per the Indian, Law HUF has received a status of the separate legal entity.
Partnership Firm: A group of people carry on the business together and share the profits and losses routing through the Partnership Deed executed between them.
Private Limited Company: A company is a separate legal entity registered under The Companies Act 2013. a shareholder who are the owners of the company and directors who run the business on behalf of the shareholders.
One Person Company: Same as Private Limited company with only one director registered under the Companies Act,2013.
Based on the above-explained business structures following are their merits:
Suitable for Small merchants and traders.
Only one person will handle the working of the business
Return to be filed on the individual’s name.
Audit on if required
A small business where two or more individuals are involved
A Partnership deed is entered stating the terms and conditions under which the partnership and how the business will be carried on
Return of the Business has to be filed as well as the individual return in the name of the partners are also to be filed
Audit if applicable.
Limited liability partnership (LLP):
Service-oriented businesses and which requires low investment needs
An LLP is registered under the Companies Act, 2013 which states that in case of insolvency and closure of business their liability is limited to their share in the LLP.
Business Return to be filed and as well as individual returns of the partner are to be filed.
Audit if applicable.
One Person Company (OPC):
A sole owner who are willing to limit their liability registered under the Companies Act 2013
Tax Holiday for the first three years if opted for Startup India Scheme.
No Dividend distribution tax
Business Return to be filed
Limited Roc compliances
Private Limited Company:
Businesses having a higher turnover or carrying on the business on a higher scale
Tax Holidays for the first three years if opted under Startup India Scheme
Higher benefits on depreciation
Business Returns to be filed
Importance of Choosing a Right Business structure?
It is important to choose the right business structure as it defines the different types and levels of compliances that are required to be followed.
For E.g. A Sole proprietor has to file an only Income tax return and GST Return if GST is applicable and companies formed under other business structure has to file an income tax return, annual returns under ROC and compulsorily Statutory audit of the accounts maintained.
These compliances would also require legal spending of the money on the auditor, accountant and also for tax filing. Thus the selection of a perfect business structure would help the businesses to plan a strategy in managing the cash flow and investment to be made in the business.
However, there are certain business structures which more investor-friendly than others. Investors will always trust a group of individuals who have a recognized legal business structure than an individual. For E.g. An investor would be willing to invest in a company or an LLP rather invest in a business that is run by a Sole Proprietor.
Points to be kept in mind while selecting a business structure and registering a company in India:
No of Owners a business will have?
This is an important question to be asked to register a company in India. For E.g. If you want to own the entire business and you have the entire investment required for running the business, it is suggestable to go for Sole Proprietor or One Person Company
Otherwise, if you want to run a business with 2 or more owners and are willing to invest as well as get investment from outside the best business structure suitable for you would be LLP or partnership firm or HUF or Private Limited Company
Amount of Investment?
If initially, you have less capital to invest you can go for Sole Proprietor or Partnership Firm or HUF. However, if you are confident that you will be able to recover the setup and compliance cost you can go for OPC or LLP or Private Limited.
Confidence and willingness to bear the liability?
Business Structures such as Sole Proprietor, Partnership Firm and HUF have unlimited liability. This state that in case of insolvency the entire amount of losses shall be recovered from you and the partners as per their profit and loss sharing ratio. Thus there is a higher risk to personal assets.
Companies and LLPs have limited liability. This means that your liability is restricted only to the amount of contribution made or the value of shares.
The income tax rate applicable to a sole proprietorship firm and HUF is the normal tax slab rates. Also in the case of a sole proprietorship, the business income is clubbed with the individual’s other income. But in case of other forms of entities like partnership and company tax rate of 30% is applicable.
Strategy for Funds?
As stated earlier it is difficult to get investment if your business structure is not a registered one. When it comes to trust then LLP and Private Limited are on the topmost list if the investment is concerned.
Procedure to register a company in India?
For Sole Proprietor:
Obtain GST Registration in name of the business
Obtain the applicable government licenses as per the nature of business such as FSSAI license, Gumasta, Trade License, etc. to start the business
For Partnership Firm
Prepare and execute a Partnership deed with the Registrar of Partnership
Obtain the applicable government licenses such as GST, FSSAI, Trade License as required
For LLP, Private Limited and OPC
Acquire Digital Signature (DSC)
Acquire Director Identification Number (DIN)
Filing E Forms with ROC
Incorporation of the Company and receive Certificate of Incorporation
These are the bases on which a company is registered in India. Now it is a difficult task to start the application process without the help of an expert.