Different Types of Company Registration in India: A Comprehensive Overview

Different Types of Companies

As per the companies act 2013, the companies have been classified into these categories in India -

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Types of Company Registration

Company registration is the process by which company owners establish or incorporate their companies. There are different types of companies in India from which to choose. Entrepreneurs can choose their business type based on their operations. The 7 main company structures popular in India are -

• Sole proprietorship
• One Person Company
• Partnership Firm
• Limited Liability Partnership (LLP)
• Section 8 Company
• Public Company
• Private Company

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Sole Proprietorship Registration

A sole proprietorship is a business where a person handles the entire business operations single-handedly and is responsible for the entire profit or loss of the company. In India, many individuals opt to register their company as a proprietorship due to its lenient regulations. However, this type of business structure comes with a major drawback. If the company encounters financial difficulties, it can be quickly shut down because the law considers the owner and the business to be one and the same. This makes it a risky venture and unsuitable for legal purposes. It is not mandatory to register as a sole proprietorship. However, to gain tax benefits, people register their firm as a sole proprietorship.

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Partnership Firm Registration

A partnership firm is a common type of company registration in India. It is chosen by those who want to run the business through a partnership model. It is governed by the Partnership Act of 1932. Creating a partnership deed is a basic legal requirement to implement this business structure. The deed is then verified and authenticated by the Register of Firms (RoF). The deed specifies rights, duties, profit share, and so on for the existing partners. Partners must sign the deed before or after contacting RoF for validation.

Requirements for setting up a partnership firm:

• At least two partners and maximum 10 partners
• A registered office address in India is mandatory
• Must have a registered partnership deed signed by all partners.

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Limited Liability Partnership (LLP) company registration

The LLP Act 2008 regulates the formation and operation of LLPs in India. LLPs offer legal protection and stability to the partners, who are not liable for the debts or liabilities of the firm beyond their agreed contribution. To register an LLP, the partners need to draft an LLP deed that defines the rights and obligations of each partner. They also need to submit the required documents, such as PAN and Aadhaar cards of the partners, address proof of the firm, etc. Additionally, they need to fill and file the FiLLiP form on the MCA portal, which is an online application for incorporation of LLP. Here is the eligibility criteria for setting up an LLP -

• Minimum authorized capital of Rs.1 lakh.
• Atleast 1 partner should be an Indian resident
• Minimum of 2 partners with no maximum limit
• Atleast 1 individual partner, if rest are corporate bodies
• No requirement for shared capital as every partner has an agreed upon contribution.

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One-Person Company registration

One Person Company (OPC) is a business structure that was introduced in 2013 by section 2(62) of the Companies Act, 2013. It allows one person to be both the owner and the director of the company. OPC is ideal for entrepreneurs who want to have a small management team and full control and profit of their business.

To incorporate as an OPC, one needs:

• One director
• A registered office in India
• Authorized share capital of Rs.1 lakh
• The individual must be a natural Indian citizen
• Digital signature certificate of the director
• Financial businesses cannot register as OPC

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Section 8 Company registration

NGOs or Non-Profit Organizations are companies that engage in charitable activities. Their main goal is to promote arts, science, education, protect the environment, and assist the poor. All the profits generated by them are used for promoting the above-mentioned activities.

To register as an NGO, a company needs at least two shareholders and directors. Usually, the shareholders also act as directors. This type of company does not need any capital. One of the directors must be a resident of India, and the company must have an Indian address for registration.

The following criteria must be met to register a Section 8 company -

• Minimum two shareholders
• Minimum two directors who can be shareholders as well
• No minimum capital requirement
• At least one director should be an Indian resident
• Must have a registered office address in India

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Private Company Registration

A Private Limited Company is a common and preferred type of business entity in India. It offers various advantages such as limited liability, clear management structure, less compliance burden, etc. The legal aspects of this business entity, such as conducting board meetings, changing directors, and expanding into new ventures, are regulated by the Companies Act 2013. The applicant has to visit the Ministry of Corporate Affairs (MCA) website to complete the registration process for this legal entity. In this type of company, a group of shareholders distributes the liability among themselves to protect their personal assets.

The following are the requirements to register as a private limited company:

• Minimum of 2 directors and maximum 15 directors
• Registered office address in India
• Minimum 2 and maximum 200 shareholders
• Authorized capital fee upto Rs.1 lakh
• Must have registered the office address
• Preparation of Memorandum of Association and Article of Association
• Obtaining digital signature certificates for the directors

Types of Private Companies

• Limited by shares - The liability of the members is limited to the normal value of shares owned by them.
• Limited by Guarantee - In this case, the liability of the members is limited by the amount the members will contribute or guarantee to pay in situation of bankruptcy.

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Public Limited Company Registration

To grow bigger, an organization can benefit from becoming a public limited company, as it gives them more advantages for expansion. A public company is a type of company wherein the general public can also purchase its shares. There is no limit on the number of shares that can be traded. But this business structure also has more legal requirements to follow. The Companies Act 2013 sets the rules for this business structure. Such companies are required to obtain a Certificate of Registration from the ROC before starting operations.

• At least three directors
• Minimum seven shareholders with no maximum limit
• Registered office in India
• Drafting of MoA and AoA
• Minimum Paid-up capital- 5 lakhs
• Authorized share capital as per governing legislation
• Digital signature certificate of the directors

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How to choose the right business structure for your business?

Types of Business Structures:

• Sole Proprietorship: Owned and operated by one person. Simple to set up but offers no liability protection.
• Partnership: Owned by two or more individuals. There are general partnerships (shared liability) and limited partnerships (limited liability for some partners).
• Limited Liability Company (LLC): Offers liability protection to its owners (members) while allowing for pass-through taxation.
• Corporation: A legal entity separate from its owners, providing liability protection. Can be a C corporation (taxed separately) or an S corporation (pass-through taxation).
• Nonprofit Organization: Operates for a charitable purpose. Must meet specific requirements to gain tax-exempt status.

Consider Liability:

• Assess your risk exposure. If your business involves significant risk (e.g., manufacturing, certain services), consider structures that offer liability protection (LLC or Corporation).

Tax Implications:

• Different structures have different tax responsibilities. Consult with a tax professional to understand how each structure impacts your taxes. An LLC or corporation may provide certain tax advantages.

Funding Needs:

• Consider how you plan to finance your business. Corporations can issue stock, which may attract investors, while sole proprietorships may have more limited funding options.

Management and Control:

• Think about how much control you want over your business. Sole proprietorships allow complete control, while corporations have a board of directors and shareholders involved in decision-making.

Regulatory Requirements:

• Different structures come with varying levels of regulatory compliance. Corporations typically require more formalities and paperwork than sole proprietorships or LLCs.

Future Growth:

• Consider your long-term goals. If you plan to grow and expand your business, a corporation or LLC may offer more flexibility and credibility.

Consult Professionals:

• It’s beneficial to consult with a expert who specializes in business structures. They can help you understand the nuances and guide you to the best choice based on your specific circumstances.

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