Well, you are here because you want to know how to register a company in India but before that do you know what are the different types of business structures and how a Private Limited Company is different, what are the benefits and disadvantages of a Private Limited Company? Let’s understand different aspects of a Private Limited Company (PLC).
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Sole Proprietorship business: This is most popular type of business structure in India. Most small businesses run in this structure. In sole proprietorship business is owned by single individual i.e. no partners or shareholders are there. In this type of business structure, owner’s liability is not limited i.e. personal assets of proprietor can be used to repay the creditors or other claims towards business. In other way, the owner and the business are same entity.
One person Company (OPC): One person company is a business structure wherein one promoter wants to start a business and at the same time he/she wants to keep his/her liabilities limited by establishing a separate legal entity.
Partnership Firm: This is common when two or more people (called the partners) shake hands to come into a partnership agreement to run a business. This usually take place when the partners want to contribute investment or possess different skills required to run the business. Partners share the profit and loss in the proportion as agreed between them. In this business structure liabilities of partners are not limited i.e. personal assets of partners can be utilized to repay business debts. Partnership Firms are regulated by The Partnership Act 1932.
Limited Liability Partnership (LLP): LLP is another form of partnership with a difference that in LLP liabilities of partners is limited to their contribution in the Limited Liability Partnership firm. Here it is important to understand that each individual as well as LLP are all separate legal entities. Limited Liability partnerships are registered with Registrar of Companies (ROC).
Private Limited Company (PLC): Private Limited Company is another popular business structure in India that provides business the status of a separate legal entity (in the form of a Company), while owners of the company i.e. shareholders are separate entities and their liabilities are limited to their share in the company i.e. their personal assets will not be utilized to pay-off the liabilities of the company. Further, in case pf Private Limited Company, usually ownership and management of the business remains with different set of individuals. Private Limited Company is regulated under The Companies Act 2013 and are registered by Registrar of Companies (ROC) under Ministry of Corporate Affairs (MCA). This business structure is considered suitable when business wish to raise capital from investors in short or long term.
Public Limited Company/Public Company: Public company is the one which is suitable for medium to large size businesses. This requires minimum seven shareholders/members to incorporate a Public Company in India. Public Company is usually incorporated if the founders of the business wish to raise capital from public. Since it is the structure which assumes investment from public, there are more compliances that a public company is required to meet.
1. Number of owners/shareholder: Every business structure has its own requirement or limitation in terms of number of owners that can contribute in the business, for example in OPC only one person can be owner, while in case of partnership firm or LLP there cannot be less than 2 partners. In case of Private limited company there can be 2 to 200 shareholders and for a Public Limited company there is minimum requirement of 7 shareholder however there is no maximum limit of shareholder in public limited company. Hence depending on the number of people interested in owning the share of business, one needs to carefully chose the right business structure.
2. How much liability is the owners can bear: In case of sole proprietorship, partnership firm and LLP, liability of owner/s is not limited, that means in case of business assets are not sufficient to payoff the debts/loans, then owner’s personal asset would be utilized to payoff the debts/loans or other liabilities.
3. Tax rate and other compliances applicable on any particular business structure: Tax rate and other compliances applicable on any business structure is another important aspect that business owners should consider while choosing the right structure for their business. For example, Public Limited Company is considered most complex among the business structures. Income Tax rate varies from time to time however generally tax on sole proprietorship and HUF is as per slab rate as applicable on individuals and partnership firms/LLP/Companies pay tax as per prescribed rate.
4. Source of funds required for business: Source of funds is also one of the very important factors to chose the business structure, if a business is willing to contribute entire funding on their own then Sole Proprietorship or Partnership Firm can be considered, however if founders are willing to raise capital from investors, then LLP or Private Limited Company could be better choice. Public Limited Company is generally considered when founders want to raise funds from large number of investors or public.
5. Business expansion plans for future: Business expansion plans also impacts of the decision of choosing the right business structure, for example if founder/s wants to expand beyond the national boundary registered entities such as LLP, Private Limited Company or Public Limited Company is considered much more trusted and eligible to incorporate entities in other countries.
1. Obtain Digital Signature Certificate (DSC) for all directors and subscribers of MOA and AOA: DSC is mandatory for all the directors and subscribers of Articles of Association (AOA) and Memorandum of Association (MOA) of the proposed company. The DSC is required to file the application for registration of the proposed new company. Class 3 DSC is required to register the proposed company with Ministry of Corporate Affairs (MCA)
2. Registration on MCA portal: One of the Director is supposed to register on MCA portal to initiate the process on MCA portal. Once the Director is register, he/she can login and start the process with name reservation in Part A of Spice+ form. Once the name is reserved, registration form must be filed within 20 days from name reservation in Part B of Spice+ form along with required documents.
3. Issue of certificate of Incorporation: Once MCA officials have gone through the application, if found ok, certification will be issued to the company and also the PAN, TAN are allotted to the company or else if the officials raise any query, then the director need to provide required document or clarification to MCA officials.
1. Identification proofs of the directors and subscribers of AOA and MOA.
2. Address proofs of the directors and subscribers of AOA and MOA.
3. NOC and address proof of the registration address for the proposed Company.
4. Memorandum of Association.
5. Article of Association.
There are different types of business structures, each with its own advantages and regulations. This FAQ can guide potential clients towards the most suitable option based on their needs (liability protection, number of owners, fundraising goals).
This FAQ will outline the essential documents required for registration, such as identification proof for directors/shareholders, Memorandum of Association (MOA), and Articles of Association (AOA).
This FAQ will provide an estimated timeframe for the registration process. It can vary depending on factors like government processing times and completeness of submitted documents.
Many regions allow online company registration for faster processing. This FAQ will clarify if online registration is available and what steps are involved.
While not always mandatory, consulting a lawyer can be beneficial for navigating legal complexities and ensuring all documents are compliant. This FAQ can advise on the potential benefits of seeking legal assistance.