7 Types of Company Registration in India
7 Types of Company Registration in India – Starting a new venture can be a rewarding experience if you have ticked all the right boxes. The quest to establish a great business starts with picking an apt business structure. The corporate realm in India offers a slew of business structures to choose from, each adhering to unique regulations, benefits, and downsides. Therefore, it is vital to weigh each structure thoroughly and discover the one that offers the best fit for your business needs. Having said that, let’s dive into 7 types of company registration in India and discover their underlying legalities, constitutional norms, pros, cons, etc.
7 Types of Company Registration in India
Company registration serves as a constitutional document that reinforces a legal identity for an entity. Having a company registration is a testament that an entity falls under one of the prevailing legislations and hence is bound to follow specified operational norms. In the status quo, our corporate landscape offers 7 types of company registration in India as discussed below:
- Private Limited Company
- Public Limited Company
- Partnerships
- LLP Registration
- One Person Company
- Sole Proprietorship
- Section 8 Company
Private Limited Company
Private limited company registration is a widely used legal structure in India. This structure offers various perks, including limited liability for members, definite management hierarchy, moderate compliances, tax exemptions, etc. Coming to the cons, this structure won’t allow members to trade shares publically, which mitigates any possibility of fundraising or business expansion.
As per the Companies Act, to form such a company, adherence to the following criteria is a must.
- The number of directors required to run a private company ranges from 2-15.
- At least one director should be an Indian resident.
- The shareholders’ number in this company ranges from 2-200.
- ₹1 lakh is the minimum authorized capital.
- There must be a registered place to run business affairs.
Types of Private Companies
Limited by shares: In such private limited companies, the members’ liability is equivalent to the extent of their shareholding valuation.
Limited by guarantee: In such a company, the liability of members is equivalent to the assured sum that they agreed to pay to combat crises like sudden closure or bankruptcy.
Public Limited Company
A public limited company is mostly popular among entities with a significant operational footprint and sizable management. One of the noticeable perks of choosing this structure is that it offers zero limitation on public share trading. This means you can proceed without any hindrances when it comes to raising funds or scaling the operation. Other benefits include stock exchange listing that enables shareholders to be part-owners of a company, limited liability, and unlimited growth potential. To form such a company, the applicant entity needs to apply with the ROC i.e., Registrar of Company.
Besides, there are some constitutional requirements that an applicant must comply with for a hassle-free registration journey. These include;
- Appointment of at least three directors. One director should be Indian.
- At least 7 shareholders with no cap on the upper limit.
- A minimum authorized capital should not be less than ₹5 lakhs
- Availability of a registered business place is a must.
Partnership Firm
The partnership is another viable structure that appeals to small entities helmed by two or more partners. In general, all partners have equal control in such a business model, be it a matter of decision-making or reaping profit. A partnership deed is drafted to give this structure a legal identity. It boasts guidelines about partners’ duties, roles, profit dissemination, etc. Notably, such firms fall under the ambit of the Indian Partnership Act of 1932.
Although a partnership firm can be established via a verbal contract, having it registered is always a safer option.
Refer to the following criteria to legalize the partnership firm in India:
- A single partnership firm can accommodate 10 partners at max. The lower limit has been capped at 2.
- The presence of a registered business place is mandatory.
- The partnership deed should entail the signatures of active partners.
Limited Liability Partnership
Often acknowledged as the refined version of a partnership firm, LLP offers various perks that would simplify your business journey significantly.
Apart from reinforcing an independent legal status, this structure allows partners to enjoy limited liability, thereby ensuring all-encompassing protection of their assets. It is important to note that members’ liability in such a company equates to their share capital contribution.
Anyway, the fulfillment of the following norms is pertinent to form such a company in India:
- The minimum authorized capital required is poised at ₹1 lakh.
- At least one partner should be of Indian origin.
- At least two partners and no limitation on the upper range.
- Out of all corporate bodies serving as a partner, at least one should be a person.
- A shared capital requirement of any threshold is not required.
One Person Company
A one-person company is an apparent choice for most small to moderately-sized entities helmed by an individual owner. OPC is a blend of a private limited company and a proprietorship firm. It adheres to many tangible benefits, including limited liability for the owner, minimal compliances, and perpetual existence.
Registering an OPC is simple and requires following the given norms:
- The required minimum authorized capital is equivalent to ₹1 lakh
- The applicant should be a person and an Indian resident.
- The applicant/owner/promoter must appoint a nominee.
- Businesses in the finance realm do not qualify for this structure.
Sole Proprietorship
A sole proprietorship offers the utmost control of management and profit to the owner. It suits businesses run by a single individual. However, a sole proprietorship offers more downsides than other structures. These include unlimited liabilities for the owner, lack of perpetual existence, negligible scaling opportunities, imposition of hefty tax rates, and no distinct legal identity.
On the flip side, it is simple to incorporate and manage thanks to minimal operational compliances.
Section 8 Company
Section 8 company is essentially chosen by non-profit entities pursuing charitable objectives. NGOs and philanthropic organizations can opt for this structure to operate in an organized way.
Below are the foundational norms for incorporating a Section 8 company in India:
- At least two shareholders and directors. Note: shareholders can serve the role of a director.
- The director cannot be a non-Indian.
- The presence of a registered office is mandatory.
Conclusion
Choosing an apt legal structure is the first step toward a successful business journey. It defines how much compliance you have to bear, what tax implications you will be going to address, and how simplified your business journey will be. Therefore, it is vitally essential to evaluate each structure thoroughly and pick the one that fulfills your requirements and doesn’t hinder your momentum.
So, this is our take on 7 types of company registration in India, if you have any queries or doubts, kindly let us know.
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