This is the most common question that arises during the incorporation stage. Entrepreneurs are usually confused about which type of company will work best for them.
Since different companies have different legal requirements; it is essential to know the concept. This will depend on the type of choice you make.
What is a Company?
A company follows the provisions mentioned in the Companies Act 2013, which says that a –
“Company” means a company incorporated under this Act or any previous company law;
In other words,
A company is a legal entity which is formed by different individuals to generate profits through their commercial activities.
There are different types of companies that can be registered under The Ministry of Corporate Affairs. Few of them are –
It is a voluntary association of several members with a separate legal entity, and the liability of its members is limited to the shares held by them. Laws, rules and regulations govern all the activities of this form of company.
Private Companies are a small business entity which can be incorporated with a minimum of two shareholders and directors. Each is regarded as the employee of the Company with the benefit of limited liability.
One Person Company
This setup allows a sole proprietor to do business and still enjoy corporate structure. Being a separate legal entity, the liability is limited to the amount unpaid by the members.
Limited Liability Partnership
As per the Companies Act, this form of business enjoys the advantages of both a company and a partnership firm. It is easy to incorporate and manage with limited liability to the owners.
Advantages of a Company
Here are a few benefits of going for a company form of business.
Unless stated, the liability of the members is restricted to the number of shares held by them.
Death, insolvency or any other loss does not affect the functionality of the company.
The operational activity is taken care of by the board of directors or the professionals appointed by them.
The shareholders of the company are free to transfer their membership to another person if they do not wish to continue.
Large membership helps to divide the risk, if any, equally among its members.
Below is a comparison between the popular forms of business in India based on different factors.
Public Limited Company
High Turnover Businesses.
Tax returns to be filed with mandatory audits.
Private Limited Company
High Turnover Businesses.
High benefits on depreciation with a tax holiday for the first three years.
Compulsory to file tax returns, ROC returns with company audits.
One Person Company
Owners are seeking Limited Liability.
No tax on dividend distribution, High benefits on depreciation with a tax holiday for the first three years.
Limited ROC compliance with business returns.
Limited Liability Company
Benefits of depreciation.
Business tax returns and ROC returns to be filed.
How to Register a Company in India?
The Ministry of Corporate Affairs regulates registration of Companies in India. However, there are different forms and procedures for different business structures.
Below are the mandatory requirements for registering a company.
Digital Signature Certificate (DSC)
All the procedures for the incorporation of a company are done online. As the applicant, your Digital Signatures are required to sign on the online forms or similar documents.
Director Identification Number (DIN)
It is necessary for people opting for partnership form of business to have a DIN number. If not so, you can apply for the same by filing DIR-3.
Approval of Company Name
You can apply for the registration of your company name once you have a DSC and DIN with you. The name of the company should be as according to the prescribed guidelines by MCA. You can quote at least six names while applying for the company’s name.
Certificate of Incorporation
You can commence with your business only when you receive a certificate of incorporation from the MCA. It involves drafting of Memorandum of Association and Articles of Association along with the desired documents and application to the Registrar of Companies.
In case of a Private Limited Company, it can start its business after receiving the certificate of incorporation whereas; a public limited company has to pass through more complex procedures of inspection. For a Limited Liability Partnership firm, it is necessary to file an LLP Agreement.
At the end,
While registering a business, the applicant must understand that each form of business has its level of compliance.
As an entrepreneur, the person must have a clear view of the kind of legal formalities he/she would require to fulfill and the effects of failing the same.