New company formations beat COVID-19 jinx

In five months of FY 2022, new domestic companies’ formation grew 25.3 percent, while limited liability partnership (LLPs) grew 44.5 percent annually.
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While the COVID-19 pandemic, and the lockdown to tame it, has been responsible for disruptions like job losses, the same has also been a boon of sorts as entrepreneurship got newer thrust across the length and breadth of the country.

Take the case of new companies’ formation, as reported by the Ministry of Corporate Affairs (MCA). In the previous fiscal, from April to August 2020, which was also the peak period of the pandemic, a total of 51,784 companies were formed.

The authorised share capital of these companies was over Rs 38,244 crore, of which Rs 2,671 crore was already paid-up.

In comparison, during the same five months of the current fiscal – from April to August 2021 – the number of companies formed has increased by 25.3 percent to 64,979.

While the authorised share capital of these companies is upwards of Rs 1.06 lakh crore, their paid-up share is over Rs 3,432 crore – an absolute growth of over 28.5 percent compared to Rs 2,671 crore last year.

The pace of companies’ formation in the current fiscal is also indicative of the fact that the COVID-19 blues are left behind. Because, during FY 2021, a total of 1.55 lakh companies were formed, with authorised and paid-up share capital of Rs 54,259 crore and Rs 7,656 crore, respectively.

In terms of the monthly increase, April and May of this year saw over 3.9 times and 2.3 times growth in the number of companies formation from 3,209 and 4,835 last year, to 12.554 and 10,915, respectively.

And when it comes to limited liability partnerships (LLPs), the numbers are a lot more encouraging, with 18,390 new LLPs formed between April and August 2021 – an annual increase of 44.5 percent compared to 12,724 during the same five months last year.

During FY 2021, the 12,724 LLPs’ obligation of (capital) contribution was Rs 1,124 crore. In contrast, the 18,390 LLPs’ obligation of contribution stood at over Rs 2,229 crore this fiscal – an increase of over 80.5 percent.

The pace of LLPs’ formation in FY 2022 is also encouraging because FY 2021 witnessed the formation of 25,428 LLPs with cumulative obligation of contribution worth Rs 5,455 crore.

While over 72 percent of FY 2021’s total LLP formation has been achieved in the first five months of FY 2022, April and May again registered bumper growth in the number of LLPs formed.

Compared to 574 and 1,224 LLPs formed in April and May 2020, the same months of 2021 saw an increase of 5.6 times and 2.7 times, respectively, with 3,234 and 3,354 LLPs formed in April and May this year.

In terms of the top 10 economies, which saw new companies’ formation, business services and trading saw a net addition of 1,304 companies (+ 33.3 percent) and 819 companies (+29 percent) at 5,225 companies and 3,644 companies each in April – August 2021, compared to 3,921 and 2,825 companies each in the same period last year.

Though lower in number, finance and construction, with 354 and 1,545 companies, registered an annual increase of over 293 percent and 112 percent, compared to 90 and 726 companies formed during April – August 2020.

While the formation of new companies reflects overcoming the pandemic pain, the number of active companies registered with MCA are also indicative of steady growth, with an annual increase of 12.8 percent, with 1.39 million active companies at the end of July 2021 as compared to 1.23 million active companies at the end of July last year.

Within the mix of active companies by economic activities, agriculture, and allied activities, which accounted for 3.7 percent of the active companies (compared to 3.2 percent in July 2020), this year saw an annual increase of 33.6 percent from 38,381 to 51,928 active companies.

Manufacturing companies, which were 20 percent of the total active companies last year, changed to 20.2 percent at the end of July this year, and grew by 13.9 percent from over 2.46 lakh last year to 2.81 lakh at the end of July 2021.

At the current pace, FY 2022 could turn out to be a record year following FY 2021 – when the number of active companies grew by an annual 12.1 percent 1.34 million.

This feat made FY 2021 outshine as the fastest fiscal in a decade, despite the pandemic. And now, there are a lot more expectations from FY 2022 as the company formation numbers look a lot more promising.


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Edited by Megha Reddy

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