STARTUP REGISTRATION
Startup Registration
For any business, it’s important to put careful consideration into the type of business structure. The type of business can impact the Taxations, Paperwork, Licenses, Reporting, Personal Liability and even ability to raise money. Your decision to begin your entrepreneurial journey starts with the decision of selecting the right business structure to follow.
With the startup ecosystem booming across the country and more and more people looking to do something on their own, there is a need to be well-acquainted with different business registration types.
Here are the most common types of business structures, although it’s important to note that liability, ownership rules, taxes and filing requirements can vary.
- Private Limited Company
- Public Limited Company
- Section 8 Company
- Nidhi Company
- Producer Company
- Limited Liability Partnership
- Partnership Firm
- One Person Company (OPC)
- Sole Proprietorship
Private Limited Company
A private limited company is a privately-held business entity. It is held by private stakeholders or by small group of people. It is registered for pre-defined objects and owned by a group of members called shareholders.
The liability arrangement in these is limited, wherein the liability of a shareholder extends only up to the number of shares held by them. The shareholders cannot be held liable beyond the value of the shares. Ministry of Corporate Affairs (MCA) is the governing body for such a company.
Private companies, do not access capital markets, they require less rigorous protection for their shareholders as compared to the public limited Companies.
Most people choose this form of business registration because of its beneficial features like limited liability and separate legal entity for its shareholders and directors.
Public Limited Company
A public limited company is a voluntary association of members that are incorporated and, therefore has a separate legal existence and the liability of whose members is limited.
A Public Limited Company is a separate legal business entity which offers its shares to be traded on the stock exchange for the general public. A public limited company has a distinct identity and is owned by the public and managed by the board of directors.
For Public Limited Company Registration, the company must have minimum 3 Directors, 7 Shareholders and Maximum 50 Directors and need minimum Rs 5 Lakhs of Paid up Capital.
Section 8 Company
The Companies Act defines a Section 8 company as one whose objectives is to promote fields of arts, commerce, science, research, education, sports, charity, social welfare, religion, environment protection, or other similar objectives.
Section 8 Company apply all its incomes and profits towards the furtherance of the objectives and do not pay any dividend to their members.
The Companies having charitable and non-profit objectives shall get recognition under Section 8 of Companies Act, 2013.
Nidhi Company
A Nidhi company is a type of company in the Indian non-banking finance sector, recognized under section 406 of the Companies Act, 2013 and as Non Banking Finance Company (NBFC).
Nidhi in simple terms means a company which is formed with the object of cultivating the habit of thrift and savings amongst the members and receiving deposits from and lending to the members for their mutual benefits.
Its core business is borrowing and lending money between their members. They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company.
Producer Company
A Producer Company is formed by ten or more individuals, or any two or more producer institutions, or a combination of ten or more individuals and producer institutions dealing in agricultural produces or post-harvest processing activities.
Thus, a producer company is a legally recognized cluster of agriculturists/farmers which aims to improve their incomes, statuses of their available support and profitability, and the standard of their living.
Limited Liability Partnership
LLPs are a flexible legal and tax entity that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners.
The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. In simple terms personal assets of the partners are not used for paying off the debts of the LLP.
Partnership
A partnership is “the relation between people who have agreed to share the profits of the business carried on by them or any of them acting for all” as per Indian Partnership Act of 1932. A minimum of 2 people are required to start a Partnership Firm. The partners have unlimited liability and can share profits in any mutually agreed ratio.
However, in partnership each partner has unlimited liability and is personally liable for all the debts of the firm.
One Person Company (OPC)
A One Person Company (OPC) is a newly introduced type of company in India since 2013. Only a natural person who is an Indian citizen and resident in India shall be eligible to act as a member and nominee of an OPC. In this type of Company, the liability of the member is limited.
This is a type of a private company and likewise can feature as a separate legal entity and get all the advantages of a private limited Company with less compliance as compared to Private Limited Company.
However, one shall take note that a natural person can be member in only one OPC.
Sole Proprietorship
This is typically the simplest type of business, with only a single person responsible for all the company’s profits and debts. If you intend to work alone, this may be the best option for you. With this type of business, you also have complete ownership and make all the decisions.
However, the disadvantage of a sole proprietorship is that you are liable, personally, for your company’s liabilities. This means that your personal assets could be placed at risk to satisfy a business debt or settle a legal claim filed against you.
