On a yearly basis, more than 120,000 firms are registered. The private limited company is a preferred corporate form in India because of features like limited liability, perpetual succession, staff attraction, and dual director responsibilities. As opposed to LLPs, private limited companies can more easily raise bank loans, venture capital funds, and outside equity investments. There are numerous business structures from which to pick if you intend to launch a firm. The organizational structure you select will dictate the taxes you must pay, the compliance requirements you must adhere to, and the eligibility requirements you must satisfy. Therefore, choosing which forms of company registration to do in India is one of the most important decisions an entrepreneur can make.
Types of Company Registration
The main method used by business owners to found or incorporate their firm is company
registration. Entrepreneurs must make sure they select a company type that fits their operations
because there are many different forms of business in India. India’s Companies Act of 2013 provides seven additional business structure choices:
Private Limited Company
Businesses that need to register as private entities can benefit from private limited corporations. To assist safeguard their own assets, the shareholders in this sort of organization divide the obligation among themselves. The sum of all the shares that each shareholder in such business types has is the total capital. In order to provide for better safety and security, the members’ personal and professional assets are also seen as separate. Such shares cannot be sold or exchanged on a public market.
According to the Companies Act, the following requirements must be satisfied in order to qualify for this type of business registration:
- Two minimum and fifteen maximum directors
- At least one director needs to be an Indian citizen
- Two shareholders or members at the very least, and 200 at the most
- In addition, an authorised capital fee of at least one lakh rupees
- The registered office must be located in India.
With GroomTax, you can get your private limited company registered easily.
Types of Private Companies
- Limited by shares: In these private limited businesses, the members’ liability is capped at the fair
the market value of the shares they possess - Limited by guarantee: In this instance, the amount that the members will contribute to or promise
to pay in the event that the company files for bankruptcy limit the liability of the members.
Public Limited Company
A public limited corporation is one whose shares are available to the general public to acquire. There is no cap on the number of shares that can be bought, sold, or traded in such company entities. The fact that the company’s shares are traded freely because they are listed on the stock exchange makes the shareholders co-owners of the business. Before starting their operations, these businesses must get a certificate of registration from the RoC.
According to Companies Act of 2013 , the following requirements must be satisfied in order to register as a public limited company:
- At least three directors
- At least one director needs to be an Indian citizen.
- Seven shareholders at a minimum, with no upper limit.
- A minimum approved capital fee of 5 lakh rupees.
- The registered office must be located in India.
Partnership Firms
Partners who have agreed on the role and profit sharing are the ones who manage operations in partnership firms. The partnership deed is a verbal agreement that specifies the roles, responsibilities, authority, and number of shares held. These businesses are subject to the Indian Partnership Act of 1932.
If a partnership deed is legitimate and recorded, a firm can operate with or without a license. However, because it grants them more rights and benefits, the majority of partnerships do register.
Following are the requirements to form a partnership:
- Two minimum and no more than ten maximum partners.
- Must have an Indian registered office address.
- All partners must sign a recognised partnership deed
Limited Liability Partnership(LLP)
The limited liability partnership, sometimes known as an LLP, is a brand-new business structure in India. It has a distinct legal position that aids in separating personal and corporate assets and offers the business owners limited liability protection. The amount of share capital determines each partner’s responsibility in LLPs.
The following requirements must be satisfied in order to form an LLP:
- Minimum Authorized Capital of Rs. 1 lakh
- There must be at least one Indian resident among the designated partners.
- Two partners at a minimum, with no maximum.
- If the other partners are corporations, at least one of them must be a person.
- No joint capital is required because each partner must earn a specific amount.
One Person Company(OPC)
OPC, the newest addition to the variety of company registration procedures permitted in India, is excellent for small firms. It is the best option for entrepreneurs that want to run a company on your own. Business owners can benefit from liability protection without creating a partnership thanks to the OPC’s unique legal standing.
An OPC is simple to incorporate and control because there is just one person involved. It primarily functions as a hybrid of the private limited company and sole proprietorship business entity models. The requirements listed below must be met in order to register as an OPC:
- A minimum of one lakh rupees in approved capital
- The person must be an Indian citizen by birth and a resident of India.
- Prior to incorporation, the promoter is required to designate a nominee.
- A financial business cannot establish an OPC.
Sole Proprietorship
A sole proprietorship is a company where the operations are managed by just one person. Since the owner and the business are seen as a single entity, their gains and losses are entirely their own responsibility. Since the owners’ names appear on the registration, the owners’ names will also appear on tax returns and accounting reports, creating an indefinite amount of legal obligation for the corporation. Nevertheless, it is the simplest type of business to start and maintain. Owners of home businesses appreciate this because it doesn’t demand a lot of capital or regulatory compliance
Section 8 Company
Section 8 companies, sometimes known as non-profit organisations, operate for philanthropic causes. The goal is to advance the humanities, sciences, literature, education, humanitarianism, and environmental protection. Additionally, all of the income they make is spent to accomplish these goals, and none of the members receives dividends.
You must satisfy the following requirements in order to register a Section 8 business:
- Two shareholders at a minimum
- There must be a minimum of two directors, who may also be stockholders.
- At least one director needs to be an Indian citizen.
- No minimum investment is necessary
- Requires an Indian registered office address.
Benefits of Company Incorporation With the assistance of GroomTax, you can quickly register any of these sorts. Similarly, our professionals will handle the entire process and address any of your inquiries.
Here Are 10 Common Mistakes You Can Avoid During The Company Registration Process
1. Incorrect Company Names
Prior to forming your startup firm, choosing a new and distinctive name for the purpose of
company registration is the first and most important duty. The naming of a corporation is
governed by a number of laws, rules, and traditions, but the Companies Act of 2013, the
Trademark Act of 1999, and the Names and Emblems Act of 1950 are the most pertinent ones.
Here are the rules that regulate a company’s name, in addition to some stipulations laid out in the
Company Incorporation Rules, 2014 that also lays out precise recommendations for the same.
The fundamental guidelines for choosing a company name are outlined in Section 4 of the Companies Act of 2013. The name of the company cannot, in accordance with the legislation, be the same, confusingly similar to, or deceptively identical to the name of an already-existing company or LLP. Additionally, the firm name should not be such that using it would violate any laws or be undesirable in the eyes of the central government. The list of such undesirable names is included in Rule 8 of the Companies Incorporation Rules 2014 along with a list of words that must first receive Central Government clearance before being used in a company name.
In accordance with the Trademark Act, you must make sure that your business’ name, brand,
logo, or any other intellectual property is distinct from an already existing, pending, or registered
trademark. The goal of trademark registration is to prevent other brands from misusing the
owner’s intellectual property. Therefore, it is strongly advised that you make sure the name of your
business does not violate the intellectual property rights of other brands. It is advised to conduct
a public search of the government’s trademark database.
2. Incorrect company description
In the application form for company incorporation, a description of the company must be
included. It must include the name of the company, the type of business it does, its present
address, its distinctive brand, its target market, and, most importantly, its goal. Important
documents like the MoA, the AoA, the business strategy, and the policy are built upon the suitable
description of the firm that was chosen during its establishment. It will support your planning for the expansion and future success of the business after incorporation.
3. Incorrect Company Type
Public limited, private limited, or OPC are the three legal categories under which companies can
be registered. Startups that have received significant investment to conduct extensive commercial
activities with plans for development and expansion typically register as Public or Private Limited
corporations. For public limited businesses to be registered, there must be a minimum of 7
shareholders and 3 directors. They are consequently larger than private limited businesses, which
can operate with as little as two shareholders and two directors. Since there is no minimum or
maximum capital requirement, it is simpler for small businesses to start out as public or private
limited corporations before expanding quickly.
Another significant distinction is that a public limited business has the freedom to sell its shares to
anyone, distributing the cost of ownership over a large number of people. A private limited
corporation, on the other hand, offers restricted shares that it can only sell to its investors and
promoters.
4. Incorrect Supporting Documents
The required supporting documents must be uploaded to the online SPICe+ application form after
the company information has been entered in PART B. The applicant’s DSC must be used to sign
or attest all required paperwork. The PAN, a proof of identity, a proof of registered address for the
applicant director, and proof of registered office address are all required supporting documents
that must be submitted with the incorporation application to the ROC. If the office space is
rented, a lease and an owner’s no-objection certificate are needed. On the other hand, the
property paperwork and a No Objection Certificate from the business owner are necessary if the
office space is owned by the business owner. The company’s e-MoA and e-AoA, which were submitted using the INC 33 and INC 34 forms, respectively, must be submitted with the application.
5. The absence of founders/Shareholder’s agreement
One of the most important papers that must be created, approved, and signed by all of the
company’s owners is the shareholder agreement. It includes the shareholders’ names and
addresses, as well as information on share issuance, share allotment, share capital, lock-in time,
investment terms, provisions for share transfers, dividend declaration, dividend distribution,
ownership inheritance, nominee information, etc. The resolution of shareholder disputes might
become quite difficult in the absence of such a documented agreement. As a result, it is advised
for startup owners to create the Shareholder’s document at the time of business incorporation.
6. Not drafting and registering the written rental agreement
Business owners frequently forego the requirement to create a written leasing agreement with
their landlords in favour of verbally settling on the tenancy terms. As only a written and registered
agreement is admissible in a court of law, this sometimes gets them into problems when
disagreements occur.
The contract needs to be written on paper with a stamp on it and notarized by a notary. A request
must be made to the State Government’s sub-office registrar for registration. The information that
must be submitted includes the company’s name and address, the amount of rent that must be
paid, the frequency of that payment (annually or monthly), the length of the lease, whether it is
subject to renewal, the notice period, the amenities offered, etc.
7. Unnecessary appointment of Directors
A company’s directors do not necessarily need to be chosen from among all of the company’s
shareholders. A company’s board of directors needs to be a strong group made up of
shareholders, market analysts, lawyers, specialists in the sector, etc. The BoD must use its
knowledge, experience, and skill to make a number of important judgments. It’s possible that not
all of the company’s shareholders possess these abilities.
Additionally, the director of the company is accountable for overseeing the complete
administrative framework of the corporation. He is prone to making even the smallest errors,
which can sometimes bring the business to disaster. As a result, it is always a good idea for a
business owner to keep the ownership and the executive of the firm separate and to choose the
members of the Board of Directors and the Director of the company with the greatest care and
delicacy.
8. Not seeking professional help
The majority of new business owners are either unaware of the requirements they must fulfil
before starting their operations or choose not to because doing so would incur hefty professional
costs. However, they frequently are unaware that the fines levied for non-compliance are far
higher in cost than the fees assessed by experts. Additionally, if legal action is taken against your
company, that could result in its closure. So, in order to prevent such dire consequences for your
company, we advise hiring professionals and utilising their compliance services. You can also use
our services at GroomTax, where we specialise in giving all different types and sizes of enterprises
company registration and post-registration compliance services.
9. No thorough information on the local laws
The Union Ministry of Corporate Affairs is in charge of registering businesses, but many state
governments have additionally imposed requirements for compliance after incorporation. These
laws may not be the same in every state, but they always result in severe consequences for failure
to comply.
The Professional Tax Registration programme in India is the best illustration of state-specific
compliance. Companies must comply with a necessary requirement known as professional tax
registration within 30 days of their incorporation date. Certain state governments impose and
collect it. Directors, owners, and workers of the company are subject to the tax, which is
deducted from their salaries and income. Karnataka, Punjab, Bihar, West Bengal,
Andhra Pradesh, Uttar Pradesh, Telangana, Maharashtra, Gujarat, Assam, Kerala, Tamil Nadu, Meghalaya,
Odisha, Tripura, Madhya Pradesh, Jharkhand, and Sikkim are the only states in India where the
provision is applicable.
10. Incorrect Office Address
The address field on applications is frequently a source of confusion for applicants. The
application form requests two different types of addresses: the director of the company’s
personal address who will sign it and the address of the main office or headquarters where all
significant business operations will be conducted. The address information must be supported by
recent—not older than two months—proof of residency. The only acceptable forms of address
proof for the application are bills for energy, water, and telephone service.