To work legally, in India, all companies need to register. The company registration process begins by deciding on the structure of the company. By selecting the right structure, a company can:
- Meet the set goals easily.
- Operate at your maximum efficiency.
A Business Structure – the Vital Necessity of it
The structure of a corporation determines two essential factors:
- Presentation of Income Tax returns.
- The compliances to which one must adhere.
To give a clearer picture take this example:
A company registered as a business has to submit income tax returns along with the annual returns to the Register 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 must be audited once a year, which means additional expenses for:
- Auditors.
- Accountants.
- Tax filing authorities.
Another example of how a business composition can influence the company is:
Some structures like PLCs or LLPs have the image of being investor friendly because they are separate legal entities. It means that a business hoping to get monetary backing in the future would do better as a PLC or LLP. If the owner chooses to register as a sole proprietorship, they may face problems in seeking outside investors.
Essentially, it means considering many factors before choosing a business structure because they impact the company in the long run.
Four primary business structures in India
The options that an entrepreneur has when deciding to form a business are:
- OPC
The sole proprietorship assigns a single person as the sole owner of a business. This type of structure is ideal for a company that has a single owner or promoter. It was introduced in 2013.
- LLP
Limited Liability Company has more than one owner. Called partners, there is a restriction on the responsibility they must 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, it has directors and shareholders. The firm considers all of them as employees.
- ANONYMOUS SOCIETY
The Public Limited Company also has a separate legal existence, and like an LLP, the liability of its members is restricted 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 a company registration online
To make the right choice for a business structure, ask the following questions.
- What is the number of business owners?
An OPC is ideal when an individual puts up the entire initial capital. An LLP or a Private Ltd. Co. would be more suitable for companies that have 2 or more owners and that are also looking for new investment by new entities.
- Does the initial investment affect the structure?
Yes, you can influence the decision. For example, homeowners who do not want a substantial investment up front may choose:
- An association.
- Single owner.
- An undivided Hindu family.
Contractors who are confident of regaining compliance and installation cost may choose:
- Limited liability company.
- OPC.
- LLP.
- How much responsibility can you bear?
Structures like PLC and LLP have a restricted liability clause. Indicates that in case of non-compliance with the loans, the affiliates will only repay the amount equal to:
- Your contribution.
- Value of shares held.
In other structures such as partnership, HUF and sole proprietorship, liability is unlimited. Members or owners have to pay the full cost that may put personal property at risk.
- What are the tax rates applicable to business structures?
For an entity registered as a company or partnership, a single tax rate of 30% applies. For HUF and sole proprietorship, the slab rates applied are standard.
- Will others invest in the company?
Any business hoping to gain investment from venture capitalists or other parties must register as a limited liability company, or LLP. They are measured as trustworthy entities and therefore easier to obtain financial backing.
The process to Registration of a new business
A new company or startup registration 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.
- Get a Director Identification Number, also called a DIN.
- Accurately fill out the new user registration form, also known as eFrom.
- Submit the electronic form.
The company is now registered and ready to work legally in India.
