Start-up founders are extraordinary designers, technologists, and visionaries, with degrees from one of the finest colleges in the country. However, many are unaware of the basic legalities that go in starting a new business – for instance, the right type of business registration. The last thing you as a start-up founder would want is getting penalized over minor legalities that were a miss from your side since you are mostly busy strategizing and expanding your business.
The first and foremost thing to do when you go aboard on your start-up expedition is to register as a company. There are four main types of companies you could register as in India; One Person Company (OPC), Limited Liability Partnership (LLP), Public Limited Company (Ltd.), and a Private Limited Company (Pvt. Ltd.).
If you would like to start off a new business and you are unable to identify which structure w ill work best for you, it is advisable to connect with an expert. But, before taking that step, as a founder, it is important to know the various categories that are ideal and the process to register under that.
1. ONE PERSON COMPANY (OPC)
Recently, set up in the year 2013, an OPC is a top way to initiate a company if there is only one proprietor. It facilitates a sole owner to carry on his work and yet be a part of the corporate structure. It is ideal for sole proprietors looking to limit their liability. Additionally, you get tax holiday for the first three years under start-up India. Higher benefits on depreciation. No tax on dividend distribution. The legal conformity will be the business returns to be filed Limited ROC compliance.
2. LIMITED LIABILITY PARTNERSHIP (LLP)
An independent legal body, in an LLP the liabilities of partners are constraint only to their agreed contribution. It is ideal for service-oriented businesses that have fewer investment needs. Moreover, you obtain a benefit on depreciation and also the legal compliances that are business tax returns to be filed ROC returns to be filed.
A firm in the eyes of the law is considered, as a separate legal entity of its founders. It comprises shareholders (stakeholders) and directors (company officers). Every person is looked upon as an employee of the firm. It is ideal for businesses that have high revenue. The tax holiday for the first three years under start-up India is an advantage here. Also the legal fulfillment, business tax returns to be filed ROC returns to be filed, an audit is compulsory.
Public Limited Company is a voluntary organization of members which is included under company law. It has an independent legal entity and the liabilities of its members are limited to the shares they hold. It is ideal for businesses with a high turnover. Tax will be exempted. The business tax returns need to be filed. An audit is compulsory.
Few other types of business structures consist of Sole proprietorships, Hindu Undivided Family, and Partnership Firms. Please keep this in mind that these structures do not come under the range of company law.
How to choose a business structure while seeking to register a business in India?”
Some of the questions that you might have to ask before choosing an appropriate registration method:
Q: How many partners will your business have?
- If you are a single owner, a One Person Company would be perfect for you. But if your business has two or more owners then Limited Liability Partnership or Private Limited Company will suit you the best.
Q: Income Tax Rates Applicable to businesses
- In the case of a partnership and a company, tax rate of 30% is applicable which does not apply for the Sole Proprietorship.
Q: Plans for getting money from investors
- It is difficult to get investments in start-ups especially when your business is unregistered. Units like LLP and Pvt. Ltd. company is most trusted when it comes to investment.
Q: Should your initial investment determine your choice of business structure
- Yes, it should if you want to spend less at the start, it would be intelligent to go in for a Sole Proprietor, or a Partnership. However, if you are sure that you will be able to recover costs, you can choose a One Person Company, LLP, or a Pvt. Ltd. Company.
Q: Willingness to bear the complete liability of the business
- Business structures like sole proprietors and partnership firms have unrestricted liability. That is, in case of any default in loans, the entire cost can be recovered from the associates or partners in profit sharing ratio. The peril to personal possessions is high in these cases.
- While companies and LLPs have a restricted liability clause. That is, the liability of its associates is restricted to the amount of payment made by them or the worth of shares each partner holds.
COMPANY/BUSINESS REGISTRATION IN INDIA
Registering a company in India is currently an easy 4 step procedure. Here it is what you need to get hold of:
- A Digital Signature Certificate (DSC)
- A Director Identification Number (DIN)
- Registration on the MCA portal or a New User Registration
- Certificate of Start-up
Registering the right type of company is important for the accomplishment of your business as it can assist you to shun any difficulties later on. Each entrepreneur needs to closely assess the needs of the firm before registering a company because each of the business is only one of its kind and the type of business structure you choose can go a long way in guarantying its triumph.