Selecting the appropriate company structure is a critical decision that holds significant implications for your business. The chosen structure influences how your enterprise operates and plays an important role in achieving your business objectives. In India, mandatory legal compliance requires every business to undergo the registration process. Before delving into the intricacies of company registration, it is essential to gain a comprehensive understanding of the various business structures prevalent in the country and how to register for them.
In this article, we talk about the important aspects of company registration, providing valuable insights and guidance for those looking to put their imprint on the Delhi startup ecosystem.
Types of Companies & Their Registrations
Various types of companies can be established under the purview of the Companies Act 2013, governed by the Ministry of Corporate Affairs (MCA). Here are the key types of company registrations available for entrepreneurs in Delhi:
A proprietorship firm is an ideal choice for solo entrepreneurs looking to establish and manage their business independently. With a single person at the helm, this structure is well-suited for small business owners with limited investments. While the sole proprietor enjoys full control and profits, they also bear the sole responsibility for any business losses.
For ventures involving two or more individuals, a partnership firm provides a collaborative structure where the partners share profits and losses equally. Governed by the Partnership Act of 1932, this arrangement is suitable for small businesses operated by multiple individuals with modest investments.
One Person Company (OPC)
Introduced in 2013, an OPC is tailored for sole proprietors who desire corporate legitimacy. It allows a single promoter to manage their work within a corporate framework and is registered under the Companies Act 2013. This structure is particularly beneficial for small businesses seeking capital infusion.
Limited Liability Partnership (LLP)
An LLP combines features of both partnership firms and companies, offering partners limited liability. Established under the Limited Liability Act of 2008, partners’ liabilities are limited to their agreed contributions. Ideal for businesses where partners seek limited liability while enjoying the benefits of a separate legal entity.
Private Limited Company (PLC)
A PLC is considered a distinct legal entity from its founders, with directors managing company affairs. Shareholders invest in the company, becoming part owners. Registered under the Companies Act of 2013, this structure is suitable for medium to large businesses aiming to raise capital and maintain a corporate identity.
Public Limited Company
Established by seven or more members under the Companies Act of 2013, a Public Limited Company has a separate legal existence and member liability is limited to their shareholdings. This structure is optimal for medium to large businesses seeking capital from the public through the issuance of shares.
Types of Business Structures in India
A comparative table has been tabulated below:
|Limited Liability Partnership (LLP)
|Service-oriented businesses or those with low investment needs
|Tax holiday for first 3 years under Startup India and depreciation benefits
|Business tax returns and ROC returns to be filed
|One Person Company (OPC)
|Sole owners seeking limited liability
|Tax holiday for first 3 years under Startup India, higher depreciation benefits, and no tax on dividend distribution
|Business tax returns and ROC returns to be filed
|Private Limited Company (PLC)
|Businesses with high turnover
|Tax holiday for first 3 years under Startup India and higher depreciation benefits
|Business tax returns to be filed, ROC returns, and mandatory audit
|Public Limited Company
|Businesses with high turnover
|Tax holiday for first 3 years under Startup India
|Business tax returns to be filed, ROC returns, and mandatory audit
Importance of Choosing the Right Type of Company
Choosing the right business structure is a critical decision that unsurprisingly, comes with significant implications for various aspects of your enterprise. One of the primary considerations is its direct impact on Income Tax Returns. The chosen structure determines the level of legal compliance required, influencing the complexity of tax-related obligations. For instance, while a sole proprietorship involves filing only an income tax return, a company must comply with additional requirements such as filing annual returns with the Registrar of Companies and mandatory auditing of books of accounts.
Meeting these legal compliances involves financial commitments for hiring auditors, accountants, and tax filing experts. Therefore, selecting the appropriate business structure during company registration becomes crucial, as entrepreneurs need a clear understanding of the level of legal responsibilities they are willing to undertake.
Moreover, the chosen business structure significantly affects the perception of potential investors. Investor confidence is often higher in businesses backed by recognised and legal structures such as Limited Liability Partnerships (LLPs) or Companies. A well-established legal framework provides credibility and instils confidence in investors, making them more inclined to invest in businesses with a solid and compliant foundation. On the contrary, an investor may hesitate to fund a sole proprietorship, emphasising the importance of choosing a recognised and investor-friendly business structure. Therefore, thoughtful consideration of legal compliances, tax implications, and investor appeal is essential when making decisions about the business structure during company registration.
Things To Consider Before Company Registration
Choosing the right business structure during the process of company registration in India is a crucial decision that requires careful consideration. Here are some important questions every entrepreneur should ask before finalising a business structure:
If you are a single person who owns the entire initial investment required for the business, a one-person company (OPC) 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.
If you want to spend less initially, it would be wise to go in for a Sole Proprietor, or HUF or Partnership firm. 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.
Business structures like sole proprietors, HUFs, and partnership firms 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.
Income Tax Rates
The income tax rates applicable to a sole proprietorship and a HUF are the normal slab rates. In the case of a sole proprietorship, the business income is clubbed with the individual’s other income. But a tax rate of 30% is applicable for other entities like partnership firms and companies.
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, and seek the help of an expert so that you register under proper guidance.
How To Register Your Company?
Registering a company in India has become a streamlined process, consisting of four essential steps:
Step 1: Digital Signature Certificate (DSC)
To initiate the online registration process, Digital Signature Certificates (DSC) are mandatory for all proposed directors and subscribers of the Memorandum of Association (MoA) and Articles of Association (AoA). DSC can be obtained from government-recognized certifying authorities. The directors and subscribers must obtain Class 3 category DSC, a crucial element for filing forms on the Ministry of Corporate Affairs (MCA) portal.
Step 2: Director Identification Number (DIN)
The Director Identification Number (DIN) serves as an identification number for directors and must be obtained by anyone aspiring to hold a directorship. DIN, along with the name and address proof of the proposed directors, is provided in the company registration form. DIN can be acquired while filing the SPICe+ form, which is a web-based company registration form.
Step 3: Registration on the MCA Portal
To apply for company registration, the SPICe+ form is filled out and submitted on the MCA portal. The director registers on the MCA portal, enabling access to services such as filing e-forms and viewing public documents. The company must also reserve its name in the Part-A of the SPICe+ form to avoid rejection. After name approval, Part B of the form is filled with company and director details, documents are attached, DSC is incorporated, and the form is submitted online.
Step 4: Certificate of Incorporation
The Registrar of Companies examines the application after submitting the registration application and required documents. Upon verification, the Certificate of Incorporation is issued, including PAN and TAN allotted by the Income Tax Department. The certificate, along with PAN and TAN details, is sent to the applicant via electronic mail.
Documents Required for Company Registration
For the registration of Limited Liability Partnerships (LLP), One Person Company (OPC), Private Limited, and Public Limited Companies, the submission of specific documents is a requisite. Here is a list of the essential documents needed for company registration, encompassing both the directors/shareholders and the company/LLP itself:
Documents of the Directors and Shareholders (Partners in case of LLP)
Proof of Identification
- Pan card
- Aadhar card
- Driving license
Proof of Address
- Latest telephone bill (not older than 2 months)
- Latest electricity bill (not older than 2 months)
- Bank account statement with address
Director Identification Number (DIN) and Digital Signature Certificate (DSC)
- DIN (DSC in case of LLP) of all directors (partners in case of LLP)
Documents of the Company/LLP
Proof of Registered Office
- Tenancy/rental agreement between the landlord and company/LLP
- Letter or NOC from the landlord, granting permission to use the office/premises as the registered office of the LLP/company
- Sale deed of the company/LLP office premises in the name of the company/LLP
Memorandum of Association (MoA)
- Contains the objects for which the company is being incorporated
- Outlines the liability of the members of the company
Articles of Association (AoA)
- Lays down the by-laws governing the operation of the company
Entrepreneurs are advised to organise and prepare these documents in advance to facilitate the timely completion of the registration procedure
Benefits of Company Registration
Registering a company in India provides several advantages, enhancing the business’s legitimacy and credibility:
- Limited Personal Liability: Protection against personal liability, shielding personal assets from business-related risks and losses.
- Enhanced Credibility: Establishes the business as legitimate and enhances its credibility in the eyes of clients, customers, and partners.
- Customer Attraction: Builds goodwill and fosters trust among customers, attracting a larger customer base.
- Investor Confidence: Increases confidence among potential investors, making it easier to secure bank credits and attract investments.
- Asset Protection: Provides a legal structure that separates personal and business assets, safeguarding the company’s assets from liabilities.
- Commitment to Growth: Demonstrates a commitment to growth and long-term stability, making it more attractive to stakeholders.
- Access to Funding: Easier access to funding opportunities, as registered companies are generally considered more trustworthy by financial institutions.
- Ease of Business Expansion: Facilitates business expansion and growth by providing a structured and recognized legal framework.
- Tax Benefits: Eligibility for various tax benefits and incentives, enhancing the financial viability of the business.
- Legal Protection: Offers legal protection to the company’s name, brand, and intellectual property, preventing others from using or imitating them.
- Perpetual Existence: Provides the advantage of perpetual existence, ensuring the continuity of the business beyond the lifespan of its founders.
- Professional Image: Projects a more professional image, which can be advantageous in dealings with clients, suppliers, and other stakeholders.
Overall, company registration in India is a strategic move that ensures legal compliance and unlocks a range of benefits that contribute to the growth, stability, and credibility of the business.
Selection of Company Name
The company name is proposed through the Form SPICe+ application, allowing for only one preferred name along with its significance. The chosen name should not resemble existing names of companies, LLPs, or trademarks. If the proposed name is rejected, an alternative name can be submitted through another Form SPICe+ application involving the payment of prescribed fees.
For an OPC, the name should be in the form of “XYC (OPC) Private Limited,” while a private company should have the name in the form of “XYZ Pvt. Ltd.” Public companies should adopt names in the form of “XYZ Limited.”
Capital of the Company
- Private Limited Company or One-Person Company (OPC): No minimum paid-up capital requirement.
- Public Limited Company: Minimum paid-up capital of Rs.5 lakh is mandatory.
The paid-up capital represents the amount received from shareholders in exchange for company shares. For public companies, this capital is crucial and must be at least Rs.5 lakh. The capital is formed when a company sells its shares to investors, typically through an Initial Public Offering (IPO).
- The authorised capital for any company must be Rs.1 lakh, as mentioned in its Memorandum of Association (MoA).
- Authorised capital signifies the maximum share capital that the company is permitted by its MoA to issue to shareholders.
These provisions provide flexibility for private limited companies and OPCs regarding paid-up capital, while public limited companies adhere to a minimum requirement. The authorised capital, a regulatory limit set by the MoA, must be specified for all types of companies.
FAQs on Company Registration
To register a new company in India, the application process is submitted online through the Ministry of Corporate Affairs (MCA) portal. Essential prerequisites include a digital signature certificate (DSC) and a director identity number (DIN).
Check the Ministry of Corporate Affairs (MCA) directory to verify your desired company name is registered. If it appears in the directory, an alternative name must be chosen, and a new application with the unique name should be submitted.
Yes, according to Indian company law, foreign nationals can be directors of companies registered in India. They must meet the criteria outlined in the Act, including obtaining a Director Identification Number (DIN) and filing Form DIR-2 within 30 days of appointment.
With the recent changes implemented by the MCA, the registration process has become more efficient. If all required documents are in order, the formal registration of a company can take approximately 10 to 15 days.
No, the entire registration process is conducted online. Documents are submitted via email, and the company incorporation certificate is received at the business address.
Check the status of company registration on the MCA website. Under 'MCA Services,' select 'View Company/LLP Master Data,' enter the company's Corporate Identification Number (CIN), and click 'Submit' to view the registration status.
Yes, company registration is entirely online. The MCA portal facilitates the submission of scanned documents, and the Central Registration Centre (CRC) processes these documents. The company receives a digitally signed Certificate of Incorporation upon successful registration.
Yes, a private limited company has perpetual succession, ensuring continuous existence despite changes in leadership. It remains a legal entity until dissolution or a decision by the Board and shareholders to wind up the company.
Yes, every company, including private limited companies, must conduct statutory audits annually. An auditor audits the company's books, and the audit report is submitted to the Board before the Annual General Meeting (AGM).
The articles of association outline internal rules and regulations of the company, covering aspects like director appointments, audit procedures, borrowing powers, and winding-up processes. The memorandum of association contains crucial details about the company, such as its name, registered office, member liability, objectives, and capital details.
While salary is not directly provided to directors, the Companies Act of 2013 allows companies to offer remuneration to directors for services rendered. The remuneration serves as compensation for their contributions to the company.