Company Registration: How to choose the right business structure?
October 9, 2019
Deciding to start a Business means making countless sacrifices and facing all kinds of challenges, big or small. There are too many things that need to be done and looked after. It becomes overwhelming if the full manpower hasn’t been hired. Which is, generally, the case with every business, as they tend to start with fewer people and hire on only when the business is in full throttle. Add to that, the stress and pressure of getting entangled in the Legal Jargon, of Company Registration Process.
Still, starting and managing your own business gives a sense of accomplishment, that is unmatched. That’s why so many people do it or would do so again.
Also, to delegate or overcome the hiccups and keep your complete focus on building the business according to the time available, one can always take help from the professional services.
Making Your Business Legal
Below are provided a brief explanation of the Types of Company Registration in India and a step-by-step guide along with the official Procedure of Company Registration in India, as governed by various laws.
Also provided are some links to resources that would prove helpful to topics such as paperwork related to legal structure and licenses or certificates. The Legal Aspects includes things like determining the type of company to be registered, the liability of the owners, company name, obtaining a business license and tax code, permit for sale etc.
Many companies in India can help you in getting it registered, or our team can help you with registration.
Choosing the Right Business Model
Primary Considerations When Selecting a Business Entity
Evaluating the options to choose the correct structure for your business requires a good understanding of business law, the characteristics of your business model and your situation. Every business structure works differently from each other, with its specific advantages and disadvantages. While choosing among the different types of Business Structures in India, take into considerations their appropriateness to your business model. Below factors to consider would help you get a clear idea while evaluating amongst the options:
- The Liability involved
- Sharing of Income & Losses
- Tax benefits
- Laws governing the Business Structure, the State and the Product etc
In India, a company can be registered under any of the following structures.
This is the easiest, most popular and prevalent way to start a business in India. This business is owned and run by a single person. It is not a legal entity but a description of a business structure, so there is no separate registration required to create one. With a sole proprietorship, the individual and business are one and the same.
Many new small businesses run as sole proprietorship because of automatic establishment and an individual can immediately start to sell goods or services.
Although you don’t have to go for Sole Proprietorship Registration, to open this business, however, you have to get a business license or permit, depending on the type of business you run.
One Person Company
A One Person Company (OPC) has only one person as a member, that is also the only shareholder. As explained by Section 2(62) of Companies Act, members of a company are nothing but subscribers to its memorandum of association, or its shareholders.
Generally, such companies are created when the business is in the early stages and there is only one entrepreneur/founder/promoter for the business. They prefer to opt for One Person Company Registration, as this makes the entrepreneur/promoter a separate legal entity distinguished from the company and have limited liability. So the company has its own assets and liabilities. The promoter and their property is detached and not personally liable to repay the debts of the company.
Partnerships in India are business structures where two or more individuals agree to share the profits and losses (in an agreed ratio) arising through a lawful business that they start together. The management and operation of the business are, generally, performed by, either, all the partners or any of them, acting for all the partners.
This type of Business Structure is registered under the Indian Partnership Act, 1932. Though not compulsory by law, still, it is highly recommended to get your Partnership Registration to avoid any future conflict between the partners.
Limited Liability Partnership (LLP)
LLP Registration in India is a somewhat newer form of business partnership structure where all of the partners have limited liability for the financial obligations of the business. Each partner has limited personal liability for the other partners’ acts. However, each partner has to undertake some part of the everyday business operations. Keeping in mind the number of Benefits of Limited Liability Partnership(LLP), this has emerged as the ideal business structure for Small and Medium-sized Enterprises. It lies somewhere between a Partnership Structure and a Company Structure.
LLP Registration is mandatory, under the LLP Act.
Private Limited Company
Private Limited Company Registration is the most popular option to start a business in India. Minimum of two shareholders and two directors are required, and a person can be both director and shareholder. But a corporate legal entity cannot be a director.
As a Private Limited Company is considered a separate legal entity status, therefore it offers limited liability protection to its shareholders and is flexible, allowing them to raise equity funds make it the most recommended type of business structure for many, including small and medium-sized family-owned businesses. For this business set-up, it is essential to know How to Start or Run a Private Limited Company, beforehand. The location, type of industry etc you need to be sure about, as these details would be required for registration & later amendments take time & effort, as compared to the businesses above.
Public Limited Company
Public Limited Company Registration necessitates that you have a minimum of 7 shareholders/subscribers, No limit on the maximum number of shareholders. Also, a minimum of 3 Directors is mandatory, under the provisions of Companies Act, 2013. Each Shareholder’s liability is limited to the number of shareholdings and has no personal liability.
It is allowed to raise capital by selling shares at the Stock Exchange and exit by shareholders is also possible. The rules and Regulations concerning Public Company Registration Requirements are huge, requiring higher commitment.
Preparations before going for Company Registration Process
Now that the decision of opting for the right business structure has been made, let us go through what all is need before going for submission of the documents.
- Conduct a Search Company / Trademark
- Check the availability of the name and Trademark selected, with the Registrar
- Describe your Business Plan and Model.
- File for Trademark Registration when you’ve chosen an original name.
- Prepare the documents required for company registration, according to the model selected.
Why it makes sense to take Professional Help for Registration of your Company
Importance of Knowledge and Expertise
As you, probably, are planning to start the company from a scratch, it would be of immense help if some responsibilities are handed over to a professional team, within your company or outside. Taking access to legal and other professional service providers is important to ease. Saving you the time and efforts that are essentially required to handle the intricacies elaborately. This time conserved would enable your business to grow as rapidly and efficiently as possible. They can perform these tasks much faster and effectively. And your skills are solely concentrated in helping your business expand.
Consulting a Professional service, who understand the procedure & documents requirements for a Startup Company Registration India could provide help in getting your company registered and growth of the company, as they would make you better aware of the Legal ramifications, the Terms of the firms, being Compliant with the prevailing laws and regulations, help you with Business Plan Preparation, setting up bank accounts, various codes, help draw up document and certificates required as per the current laws and many more.
Maybe, you plan to employ full-time professionals who should be able to do these work, as soon as possible. Meanwhile, estimate the costs involved in both options and chose the optimum track.