Before registering a company in India, the promoters should decide on the most flexible and viable business structure for them. Before commencing the registration process, the promoters should have a fair idea on their project and should have a long term plan for it. They can opt for a business structure which is in harmony with their project.
The available business structures available in India for making profits are described under the below main heads:
There are also few more business types that can be registered in India, which are:
Let us have a quick idea on what they mean in India as per the Act
An agreement between two or more persons, named as partners, for the formation of a business to earn profit is commonly known as Partnership. The partners in the business are legally bounded with an agreement known as Partnership Deed. As per the deed, any profit earned by the business is shared between partners as per the agreed ratio; in case of any loss, each of the partners is personally responsible. Personal assets of partners may be used to compensate the losses incurred, if any.
A business which is registered in the name of a single person is called Sole Proprietorship, whereby the promoter himself is responsible for the entire business. As per the rules, the promoter and the business are treated as single entity; hence any personal assets and business assets are realized to compensate any loses.
Also, the profit from the business is added to the promoter’s income for tax computation purposes. If the turnover of a Sole Proprietorship exceeds 2 Crore and the paid up capital is more than 50 laks, it should be converted to a private company.
Sole Proprietorship and Partnership Firms are ideal for business which are small in size and have minimal investment.
A Private Limited Company is the most popular form of business among domestic and international investors. The company which is owned by individuals is generally known as private limited company. The minimal requirement to form a private limited company is 2 directors or members; the maximum number of directors is restricted to 200. The major advantages of these types of companies are that the business assets are separated from personal assets.
Private Limited Company can be of three types:
One Person Company is a new form of business structure introduced in India through the Companies Act of 2013, which is very similar to the single person company type popular in other countries. The biggest advantage of a One Person Company is that there can be only one member at the same time the company can enjoy the features of a private limited company. As per the act, OPC is a separate legal entity from its members, offers limited liability protection to its shareholders, has continuity of business and is easy to incorporate.
Details on OPC can be viewed here
A Public Limited Company or Public company is company that is not a Private Company; meaning, the company which is owned by public or in which the public can subscribe. They can raise capital from the public directly through issues of shares. The minimum number of directors is 3 and the minimum number of shareholders is 7. There is no limit on the maximum number of shareholders. Registrations for these types of companies are mandatory and will have stock exchange regulations also.
Apart from the above companies, there is one more business type that can be formed in India, Limited Liability Partnership (LLP). These types of businesses come under the regulation of The Limited Liability Partnership (LLP) Act of 2008. It is a separate legal entity from the partnership entity and business assets are separate from the personal assets of the partners. In case the business incurs losses, the personal assets of partners are not put at risk as the maximum liability of every partner is defined by his share capital in the entity.
The foreign companies and foreign LLPs can become partners in LLPs in India. An LLP should have minimum two partners and is not limited on the maximum number of partners.
A Section 8 company is recognized under the Companies Act, 2013, for the promotion of commerce, arts, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object. The profits attained by such a company can only be used to promote the objectives of the company and nothing in the form of dividends is payable to any of its members. A Section 8 company is basically registered for charitable and not-for-profit purposes. These types of companies have a higher amount of credibility when it comes to donors, grants by the Government or other stakeholders.
It is worth to note here that no foreign companies or investors are entitled to form a Single Person Company in India, yet rest others are permissible.