Most of the new business founders are either failed in business as an employee or once they had done some jobs which are against their wish or in demand. In current days, 5 in 10 youngsters prefer to a start-up rather than getting employed and repeating the same 9 to 5 jobs each day. But this decision has both pros and cons. If the company is registered as per the government norms, followed mission statements, and set goals at regular intervals according to the profit & loss of the company, then the new business decision will result in a fruitful experience.
However, when you put your shoes as an entrepreneur, the very first thing you should do is to register your company. As a thumb rule, you should never use your private bank account to process any of the business transaction. Because you never know when this could revert you negatively in the future.
In addition to this, if you are willing to raise funding then the investors would never show interest on a start-up to invest; In an unregistered company. In case of having any incorrect company structure, the funding investors would ask you to get the registration process sorted. Hence, in this article, to prevent you from doing registration blunders and to set apt goals to reach your goals we have written this.
Types of business registration structures in India
There are 5 major types of companies which you can register in India:
- Sole proprietorship
- One-person company
- Partnership company
- Limited liability company
- Private limited company
1. Sole proprietorship
Sole proprietorship Registration is the easiest form of the company registration system in India. A person manages sole ownership, hence it is known as a sole proprietor. If you are in need to have complete control of your business, this possibility serves as the best fit.
Benefits of the sole proprietorship
- Not required of government registration
- No compliance must be fulfilled
- No paperwork related to government regulatory
- Your profit is not shared to anyone
- Not necessary to have double taxation
- Income tax has to be paid only according to the income you earn.
Registration documents required
- Aadhaar card
- PAN card
- Bank account
- Office address proof
2. One-person company
A known and new business structure is called One Person Company (OPC) and was introduced by the Indian government in 2013. Till then in 2013, a person could not incorporate a company totally and you need to have a minimum of 2 directors to complete the process.
But why should you need to incorporate a company if you are a single person just going for a sole proprietorship? An incorporated company aids entrepreneurs to control their liabilities and undergo certain tax benefits. But with the one-person company, any individual could incorporate a company and be the director while keeping 100 % shares of the company.
How to register a one-person company?
- Receive Digital Signature Certificate (DSC)
- Receive Director Identification Number (DIN)
- Name approval application
- Memorandum of Association
- Articles of Association
- Proof of registered office
- Declaration of facts and consent of the director
- Declaration documents
3. Partnership firm
If you have convinced yourself to take on partners in your business, the fastest and easiest way to go ahead is to create a Partnership Firm Registration Online. Everything you need here is a partnership deed which is just an agreement between the partners you want to add on in your business. This agreement will have all the obligations and duties between the partners and in what way, shares, the profit will get shared in the future.
Details to be mentioned in the partnership deed
- Address and name of each partner.
- Address and name of the partnership firm.
- The commencement date of the firm.
- The Capital amount each partner has invested.
- The Profit-sharing ratio among partners.
- Commissions or salaries to be paid out to partners.
- The rights each partner possesses.
- Obligations and duties of each partner
- The other clauses which are mutually agreed between the partners.
Benefits of partnership companies
- Convenient to start the business.
- The loss is shared between the partners
- Not required to send annual returns to the MCA
- Statuary Audit is not necessary
- Easy to terminate partners and shut off the business.
4. Limited liability Partnership
Limited Liability Partnership takes on the advantage of many other business structures corporation, partnerships, and sole proprietorship. The Limited Liability Company is considered to be the flexible business structure, and LLP segregates personal and business liabilities. Each owner will have their shared tax liabilities.
Key advantages of LLP
- The paperwork in LLP is comparatively lesser than other registrations methods. This enables LLP to be more flexible and easier to form.
- LLPs protect their members from the liabilities such as personal debts and legal hearings.
- LLP provides tax flexibility where the expenditures, income, and profits merged with the owner’s tax returns.
- In the LLP method, one does not have to necessarily follow any set of business structures to run an organization.
- Profit-sharing is very flexible in LLPs.
How to set up an LLP?
- Apply for Designated Partner Identification Number (DPIN) by sending the online form.
- Get your Digital Signature Certificate and process it on the MCA portal.
- Receive approval for your LLP name from the Ministry of Corporate Affairs (MCA).
- Post-approval send the incorporation form to register the LLP and receive the LLP agreement.
5. Private limited company
A Private Limited Company is a type of company that has an employee population between 2 and 200 members. As the name says, thus the private limited company cannot be raised with the aid of public funds; the company can never publicly solidities its shares & there is no mandatory capital paid up required to set up a Limited Liability Company.
Benefits of having a private limited company
- The company owner’s liability with respect to the company’s debt has limited to the shares of the owner.
- The company’s share is easily transferred to the other person.
- The company can receive funds from any public platform, hence making it easier to raise money for the company’s growth.
- There are surplus tax benefits in LTDs, and the percentage of tax applied is also lesser as compared to other company registration types.
How to register a private limited company?
- Apply and receive Directors Identification Number(DIN), which is an identification code that mandates you to have documents like PAN card, Aadhaar card, bank statement, phone and electricity bill.
- The company’s name registration application needs to be filed.
- Must draft MOA and AOA. MOA stats the objects of the company while AOA stats the rules and regulations of the company.
- File the application through the SPICE-E option form on MCA’s website and receive PAN and TAN applications.