How to register a business in India?
Updated: Dec 9, 2022
With the second-largest population in the world, India is a dynamic nation. It has evolved into a desirable location for numerous new firms and startups when compared to the previous decade and especially after the pandemic several new businesses emerged. Another reason for the same was according to the latest world bank’s Ease of doing business report 2020, India jumped 14 places and now stands at 63rd position. It is important for any country as this shows how viable a country’s economy and rules are to support the businesses. Setting up a business is just the first step, a business owner has to make informed decisions at every stage. And one of the most important decisions is incorporating your business and to register a company in India. On one hand, the government has simplified the procedure of registration of a company but on the other hand, sometimes complying with different laws is quite difficult. Therefore, we at Vyapaar Pundit are here to help you all understand it better.
Business Registration in India made easy
Our government has undertaken various initiatives toward Ease of doing business one of which is SPICe+. It is an integrated web form and upgraded version of the SPICe. The updated version of SPICe i.e. SPICe+ offers 11 services which are provided by three central government ministries and departments—Ministry of Corporate Affairs, Ministry of Labour and Department of Revenue in the Ministry of Finance—as well as three state governments—Maharashtra, Karnataka and West Bengal—which eventually helps in saving time and money for starting any business in India. Every company incorporated after 23rd February 2020 is required to make an application for reservation of name and incorporation through the web service SPICe+. Nevertheless it has made it easier and less time consuming to do online company registration in India.
All you need to know to start a company in India
One of the first legal decisions an entrepreneur makes when launching a new business is the type of business entity. The Limited Liability Partnership Act and the Companies Act of 2013 have expanded the range of business structures that are now available. Because of this, it's critical for the entrepreneur or promoter to weigh the advantages and disadvantages of each company organization before making a decision. In this blog, we will compare those types of entities and then you can decide which one best suits you and your business.
Registration of Public Limited Company
A voluntary association of members that is incorporated has a distinct legal existence and limits the responsibility of its members is referred to as a public limited company. It must have at least 7 members in order to be formed, but there is no upper restriction on the total number of members. When a shareholder of a public limited company passes away, the corporation is unaffected; her/his shares are instead handed to her/his heirs, and business as normal is carried out. In a public limited company member's responsibility is only up to the face value of the shares they own and is under no obligation to contribute anything to the company's creditors once he has paid the full face value. As a lot of information is required to be disclosed to the general public, there is a great regulatory burden on them as well.
Registration of One Person Company
A one-person company is one in which there is only one shareholder. But there are two members who are required to start an OPC, viz. the director and nominee director. However, not everyone has the choice to run a one-person company. The Companies (incorporation) Rules of 2014 list a few requirements, and if they are met, one is qualified to incorporate it. The requirement is:
Only a natural person who is an Indian citizen whether residing in India or not is eligible to incorporate a one-person company and can also become a nominee for the sole member.
The status of the one-person company is the same as that of a private limited company but it is easier for the former to get better banking and other facilities. As the regulations are more lenient and less stringent the overall paperwork here is very less.
Registration of Partnership Firms
A partnership is an agreement between two or more who come together to carry out some business activity and the resulting profit or loss is shared among them. From the definition, it is clear that a minimum of two people can become partners, as a partnership firm need not be registered as it is not compulsory. There is no minimum capital required for it and it can be dissolved by any one or all of the partners. But one of the biggest disadvantages is that in the case of a partnership firm the liability of the partners is unlimited. Along with this, the firm has no separate legal entity and so the partners are themselves liable for the same.
Registration of Limited Liability Partnership (LLP) Firm
A Limited Liability Partnership is one in which a minimum of two members are required but there is no such limit for the maximum number of partners and their liability is also limited. It is a separate legal entity and is registered under the MCA (Ministry of Corporate Affairs) but is governed by Limited Liability Partnership Act, 2008. Only with the previous approval of the Reserve Bank of India and the Foreign Investment Promotion Board (FIPB) foreigners are permitted to invest in an LLP. In the case of LLP ownership can be transferred to another person as well. There are very few rules and regulations to comply with and that’s why it is easy to start an LLP.
Registration of a Sole Proprietorship
It has one of the simplest structures when it comes to starting a business. In the case of a sole proprietorship, no formal registration is required. In this, the promoter is personally liable for the liabilities of proprietorship which means that it does not have a separate legal entity it can sue or can be sued in the owner’s name and can have only one person as its member. Also in a sole proprietorship, there is no foreign ownership same as that of in OPC i.e. only an Indian national can incorporate a sole proprietorship. A proprietorship business cannot be transferred and is dependent on the proprietor to continue operating. If you're a freelancer who is just starting to build a clientele, setting up a sole proprietorship is a simple and affordable choice.
Registration of a Private Limited Company
A private limited company can be established with a minimum of two and a maximum of 200 members. A private limited corporation is privately held by its members only and therefore is neither traded nor is it listed on the stock exchange. With limited members and fewer restrictions, the scope of the company is limited and it has to comply with lesser legal formalities as compared to the public limited company. As the number of shareholders is less the decision-making process is much faster and more flexible. A limited liability company would be better suited to being formed for a rapidly expanding business that requires financing.
For international investors looking to enter the Indian market for the first time without making a significant financial commitment, liaison offices (LOs) are a popular choice. LOs allow international companies to establish a minimal presence in India in comparison to other company structures while minimizing their financial, legal, and administrative requirements. A liaison office's duties are restricted to gathering data on potential market prospects and informing potential Indian customers about the company and its products. Permission to set up such offices is granted for a period of 3 years which can be extended from time to time.
These are some basic corporate entities from which one can choose. The main criteria for choosing a business might differ from person to person, but for most of them, it is profit and flexibility of the rules and regulations. Therefore, it is crucial that an entrepreneur choose the sort of business entity that would be appropriate for the business and register it as soon as possible.
Written & Compiled by Nidhi K.