Planning a Company Formation in India? Here Is What You Need To Know

Often, an entrepreneur or a team of founders with a vision to start their own company are from an IT, engineering, marketing or other such professional backgrounds. Thus, they may lack the legal expertise required to register and start a business. This is where taking the help of a professional team offering business formation services in India can come handy. So, if you wish to prevent yourself from committing registration blunders and paying heavy penalties, it is a wise idea to understand the basic legalities involved in company formation.

Before we get to the process of registering your company, it is crucial to understand the types of legal entities.

Types of Business Structures in India

• Sole Proprietorship

If you want full authority over your business, this is an ideal option and the cheapest way to start a company managed by a sole proprietor. In a sole proprietorship, the owner has unlimited liability for all debts which makes it suitable only for small businesses, traders and small merchants. There is no separate registration procedure for this structure as sole proprietorships are recognized by other registrations such as GST registration, Shop Act Registration, and so on.

• One Person Company

A one-person company is ideal to start a company with one owner or promoter while also getting a legal recognition as a company and limited liability for the owner. However, it is important to note that if the revenues of OPC exceed Rs. 2 crores and the paid-up capital goes over Rs. 50 lakh, then it needs to be converted into a private limited company.

• Private Limited Company

To register a private limited company, you need a minimum of two and a maximum of 200 members. Private limited companies are an ideal option for growing enterprises who are looking to raise capital from venture capitalists (VCs) or Angel investors as such companies can make them their shareholders and even appoint them as their board of directors.

• Public Limited Company

A public limited company is apt for big corporations who want to get listed on the stock exchange and have a minimum of 7 members and at least 3 directors.

• Limited Liability Partnerships

If you have a family-owned business, registering an LLP or Limited Liability Partnership can be best-suited for you. Besides, an LLP requires fewer compliances compared to a Private Limited Company and has a simple structure. Furthermore, the liability of partners is restricted to their contributions to the business as opposed to a traditional partnership firm where the partners are jointly and severally liable to any actions of the firm. If you are unlikely to require equity funding, LLP can be an ideal choice for your business as it combines the best features of a private limited company and a traditional partnership firm.

Significance of Choosing the Right Business Structure

Each of these business structures mentioned above has its compliances and impacts your tax returns differently. For example, while a sole proprietorship only has to file an income tax return, a Private Limited company/public Limited company has to file annual returns with the registrar of companies as well. Their accounts are required to be audited every year mandatorily. The tax structure, rates and incentives also depend on the type of your company. Hence, you must have a clear idea of your business objective and decide the best legal business structure.

Process of Company Registration in India

A company can be registered by following the below-mentioned steps:

• A Digital Signature Certificate (DSC)

For online company registration, a digital signature certificate is needed to sign the various online application forms and documents electronically.

• A Director Identification Number (DIN)

The second step is to acquire a DIN for every intending and existing director of the company by making an application in form DIR-3 as per Section 153 and 154 of the Companies Act, 2013. However, after the amendment, one can simply submit one single application, i.e. E-Form 32 under SPICe for reservation of name, incorporation of a new company, application for allotment of DIN, PAN and TAN.

• Applying for Company Name

The next step is to check for company name availability and ensure there are no trademark issues.

• Draft AOA, MOA and Other Legal Documents

Now, you need to draft the Memorandum of Association, Articles of Association and other relevant documents stating the objects of the company and its various rules and regulations.

• Registration on the MCA Portal

The last step is opening an account for uploading registration form along with e-MOA and e-AOA to the portal. These forms are to be electronically signed using DSC. Within 3 to 5 days, you can get the incorporation certificate delivered to your inbox, provided all the documentation is in place.

Azalea Advisors is a leading advisory group comprising of a team of chartered accountants and legal experts. If you are looking for to set shop in India, we can offer our business formation services in India to help you start your company. We can also assist you with other small business consulting services in India.

Get in touch with us today!