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Selection of business structure and company registration process in India

To work legally, in India, all companies must register. The company registration process begins by deciding on the structure of the company. By selecting the right structure, a company can:

  1. Meet set goals easily.

  2. Operate at maximum efficiency.

A business structure: your vital need

The structure of a corporation determines two essential factors:

  1. Filing income tax returns.

  2. The compliances that must be met.

To give a clearer picture, take this example:

A company registered as a business has to file income tax returns along with the annual returns to the Registrar of Companies. On the other hand, a business registered as a sole proprietorship simply has to file income tax returns. In addition, a company’s financial books need to be audited once a year, which means additional expenses of:

  1. Auditors

  2. Accountants

  3. Tax filing authorities.

Another example of how business composition can influence the business is:

Some structures like PLC or LLP have the image of being investor friendly because they are separate legal entities. It means that a company that hopes to obtain monetary support in the future would do better as a PLC or LLP. If the owner chooses to register as a sole proprietor, they may have trouble finding outside investors.

Essentially, it means considering many factors before choosing the business structure because they have a long-term impact on the business.

Four main business structures in India

The options that an entrepreneur has when deciding to set up a company are:

  • OPC

One Person Company assigns a single individual as the sole owner of a business. This type of structure is ideal for a business that has a single owner or developer. It was introduced in 2013.

  • LLP

The Limited Liability Company has more than one owner. Called partners, there is a restriction on the responsibility they have to assume. It is equal to the contribution they made. LLP is a separate legal entity.

  • ANONYMOUS SOCIETY

Private Limited Company is also a separate legal entity from its creator. The most common type of structure has directors and shareholders. The firm considers them all as employees.

  • ANONYMOUS SOCIETY

The Corporation also has a separate legal existence and, like an LLP, the liability of its members is limited to their actions. This structure is made up of “a voluntary association of members”.

A business structure: how to select the right one when applying for business registration online

To choose the correct business structure option, ask the following questions.

  • What is the number of business owners?

An OPC is ideal when one person is contributing the full initial capital. An LLP or a Private Ltd. Co. would be more suitable for companies that have 2 or more owners and are also looking for additional investments from new entities.

  • Does the initial investment affect the structure?

Yes, it can influence the decision. For example, homeowners who don’t want a substantial investment at first can choose:

  1. An association.

  2. Single owner.

  3. An undivided Hindu family.

Entrepreneurs who are confident of recouping setup and compliance costs can choose to:

  1. Limited liability company.

  2. OPC.

  3. LLP.

  • How much responsibility can you take?

Structures like PLC and LLP have a restricted liability clause. Indicates that in the event of loan default, the affiliates will only reimburse the amount equivalent to:

  1. Your contribution.

  2. Value of the shares owned.

In other structures such as partnership, HUF and sole proprietorship, the liability has no limit. Members or owners must reimburse the full cost, which can put personal property at risk.

  • What are the tax rates applicable to business structures?

For an entity registered as a company or partnership, a fixed tax rate of 30% applies. For HUF and sole proprietorship, the applied slab rates are standard.

  • Will others invest in the company?

Any business that hopes to obtain investments from venture capitalists or other parties must register it as a private limited company or LLP. They are measured as trustworthy entities and therefore easier to obtain financial backing.

The process for Registration of a new company

A new company registration or a startup in India can now be easily registered online. The new process was incorporated by the Ministry of Corporate Affairs a few years ago. The basic steps that must be followed to register a company are:

  1. Obtain a digital signature certificate, also known as a DSC.

  2. Obtain a director identification number, also called a DIN.

  3. Accurately fill out the new user registration form, also called eFrom.

  4. Submit the electronic form.

The company is now registered and ready to work legally in India.

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