India is one of the most popular countries where foreign companies get lucrative opportunities to establish a strong foothold. That said, it is crucial to know the different types of business structures that can be registered in India.
Types of Businesses in India
Being an economic hub, India attracts investors and foreign companies with its plethora of resources and versatile business frameworks. Any foreign companies looking to set up a venture in India must register under one of the suitable business frameworks and follow statutory compliance. Also, these business structures determine the taxation system of the company.
Types of Business to Register in India
The Indian economy is a mixed economy. So, different business frameworks operate within the same periphery. The following are the types of companies which one can register in India.
Private Limited Company
Private limited companies are registered under the Companies Act, 2013 by a private body of individuals. This type of company is formed where a business’s liability is distributed among the group of shareholders. The capital of the company is called shares which are held by members. The liability of a shareholder is limited to shares held.
Companies Act 2013 has laid down eligibility criteria for the formation of private limited companies:
- The company must have a registered office in India.
- A minimum of two or a maximum of fifteen directors are required to form a private limited company.
- One of the directors should be a resident of India.
- A minimum of two shareholders is required. In this case, the maximum limit is 200.
- The capital to commence business required is at least Rs.1 lakh.
A private limited company is further divided into the following categories:
- Company Limited by Shares
As per Section 2(22) of the Companies Act, 2013, a company limited by shares is a company whose liability of the members is limited to the amount of the shares not paid by them. Here, the shareholders cannot be held responsible or liable beyond the nominal value of shares.
- Company Limited by Guarantee
A company is considered to be limited by a guarantee when the members or shareholders have agreed to pay a nominal amount to cover the debts of the company in a time of winding up. Such agreement is laid on the Memorandum of Association from the beginning of incorporation.
For the members or stakeholders of such a company, there is no limit to the liability held by them. During winding up or insolvency, the members are liable to pay for any debts from their personal assets.
Public Limited Company
A public limited company has limited liability and offers its shares to be traded by the general public. The shares of the company are listed on stock exchanges and hence can be traded freely. The shareholders of a public limited company are considered to be part-owners of the company. A public limited company will have to meet the following eligibility criteria as per the Companies Act, 2013:
- There should be a minimum of three directors.
- The Company should hold an authorized capital of Rs.5 lakhs.
- A Public Limited Company must obtain a certificate of registration from the Registrar of Companies prior to commencing business activities.
- There should be a minimum of seven directors to form such companies. However, there is no cap on the maximum limit.
- The Company must have a registered office for incorporation in India.
One Person Company
The formation of the One Person Company is newest concept and is ideal for small businesses. This type of company has a distinct legal entity and is operated by a single person. As per Companies Act, 2013, minimum paid-up capital of Rs.1 lakh is to be maintained. This company concept is introduced in India to ideate entrepreneurial approach of business. In India, One Person Company operates as amalgamation of a private limited company and sole proprietorship.
Partnership Firm
The business operations and transactions are handled by different partners. The partners are people who are responsible for the activities of the business. The partnership deed consists of functions, duties, power of each partner and number of shares held by them. The governing Act of this type of company is the Indian Partnership Act of 1932.
As per this Act, companies can commence businesses with or without a license. The valid and registered partnership deed acts as a guideline for this kind of firm. The following are eligibility criteria for forming a partnership firm:
- The Registered Office of this firm must be located in India.
- Partnership Firms formed must have a partnership deed signed by all partners.
- The Minimum number of members is required to be two, and the maximum cannot exceed 50.
Limited Liability Partnership
The concept of LLP is a new approach in India. As per this structure of the business, the liability of the partners is limited to the nominal value of the shares held by partners. The company has limited liability, and its legal status is distinct from its members.
Sole Proprietorship
It is the type of business that is run by a single individual only. The owner of this company is responsible for profits and losses as there is no separate legal entity. The sole proprietorship business has unlimited business liability. It is the most common type of business setup in India.
Why choosing the Right Business Structure is Important in India?
The selection of appropriate business structures in India helps businesses fulfill their administrative and overall business goals. The determination of the right business structure will attract outstanding funding opportunities. Also, business structure determines the taxation and statutory compliances that the company will abide by.
Overall, the business framework has a vast impact on the company’s activities and profits earned by the company.
What to Keep in Mind while Registering a Company in India?
A company looking for lucrative business options in India must consider a few elements. These elements affect the face value of a business directly or indirectly.
- The number of owners affects the liability sharing capacity of the business.
- The type of business structure determines the taxation policy to be followed.
- For sole proprietorship, the liability of the business is unlimited, while in the case of a partnership firm, the liability of the business is divided among the partners.
- The taxation structure of the business differs across the different frameworks.
Lastly, the scope of funding from investors depends on the business structure. The companies registered under private limited company or LLP attracts investors to fund more. However, sole proprietorships or businesses under Hindu Undivided Family Firm tend to receive less funding.
How can a Business Consulting Firm help?
Business consulting firms like Tecnova provide thorough assistance by performing market research on behalf of companies looking to set up ventures in India. These firms have gained expertise in understanding the robust Indian market. The market research performed by these firms involves the following activities:
- Analysis of current and future analysis.
- Understanding of Government regulations.
- Competitive analysis.
- Understanding technology trends and demand and supply gap.
- Allocation of sales & distribution channels and business leads/partners.
The factual information provided by these firms helps in understanding the prospects of the business. Also, by providing market insights, these firms help to locate possible risks and losses of the industry stakeholder. The scope of Indian business has lucrative options for foreign ventures to invest in or set up different businesses in India.
Reference
Company Limited by Shares
Company Registration In India
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