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:
Meet set goals easily.
Operate at your highest efficiency.
A business structure: your vital need
The structure of a corporation determines two essential factors:
Filing income tax returns.
The compliances that must be met.
To give a clearer picture, take this example:
A company registered as a business must file income tax returns along with 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:
Tax filing authorities.
Another example of how a 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 impact the business in the long run.
Four main business structures in India
The options that an entrepreneur has when deciding the constitution of a company are:
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.
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. The 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 formed by “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, 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 do not want a substantial investment at first can choose:
An undivided Hindu family.
Entrepreneurs who are confident of recouping setup and compliance costs can choose to:
Limited liability company.
- How much responsibility can you take on?
Structures like PLC and LLP have a restricted liability clause. Indicates that in case of loan default, affiliates will only reimburse the amount equivalent to:
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 hoping to obtain investment 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 to Registration of a new company
Registering a new company or start-up 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:
Obtain a digital signature certificate, also known as a DSC.
Obtain a director identification number, also called a DIN.
Accurately fill out the new user registration form, also called eFrom.
Submit the electronic form.
The company is now registered and ready to work legally in India.