When a person who is a resident of India plans to start a business in India, he becomes an Indian Owner of that business. A number of government schemes such as Start Up India are there in order to encourage entrepreneurs in Delhi and other parts of India. According to a report Delhi accounted for one of the most suitable cities for doing a start-up. With policy makers making effective changes in the policies governing start-ups, a push to the start-up world can be viewed as the aim of these policies and government thus strengthening the start-up community in Delhi.
A business structure can be established by an individual where he and his company are considered a single entity for tax and liability purposes. An Indian Owner can start a business by opening a proprietorship firm, partnership firm, public company or a private company.
The question that comes first is “How to start a start up in India?” In order to start a business in India or even for the business as a foreign owner, it is a great idea which is required and then the planning process you employ plays a significant role in making your business successful. After this incorporation of the company takes place with various documents and details required for the same.
What all options does an India Owner have?
It refers to that business organization where a single person known as a proprietor owns, manages and controls all the activities of the business. The proprietor needs to pool and organize the resources in a systematic way all by himself and thereby he controls all the activities with the sole objective of earning profit.
Income tax need not to be paid separately by the owner of the company, but reporting of business income or losses is done on his/her individual income tax return. The owner is inseparable from the proprietorship, so he/she is liable for any business debts.
Also there are ways to pool the resources by two and more people such as that in Partnership Firm.
Key Characteristics of a Proprietorship Firm
- Single Ownership
- No sharing of Profit and Loss
- One-man Control
- One-man’s Capital
- Unlimited Liability
- Less legal formalities
Sole Proprietorship can take the following types
- Self Employed Business Owner- When the proprietor thinks of conducting a business with an intention of earning a profit.
- Independent Contractor- Here an Independent Contractor is hired to perform a specific task.
- Franchise- Proprietor or the franchisee pays fee to franchisor to open a business.
Proprietorship firm can although be started without any governmental registration but tax registration is needed in terms of Proprietorship Registration in India. This can however be done online by Sole Proprietorship Registration Online where you need to fill a registration form in order to register for service tax for your proprietorship. Hence Proprietorship registration in India is based on registration for tax and not for the incorporation of the firm. Sole Proprietor registration in terms of incorporation process is therefore not mandatory to start your business.
Partnership refers to ‘relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all’. The one that gets established after entering into a contract is ‘partnership firm’ and the ones joining hands become partners. Business is carried out under firm’s name. Partnership firm registration in India needs certain rules and regulations to be followed under Partnership Act 1932.
Every partner is entitled to participate in the behavior of the affairs of its business. Also, there exists a relationship of mutual agency between all the partners. Thus each partner carrying on the business is the principal as well as the agent for all the other partners. He is bound by the acts of other partners & can also bind other partners by his acts with regard to business of the firm.
But if someone plans to start a Limited Liability Partnership, he can enjoy the benefits of limited liability.
Key Characteristics Of Partnership Firm
- Two or more Persons
- Mutual Agency
- Sharing Of Profit
Types of Partnership
General Partnership: Here, the liability of each partner is unlimited which means that the firm’s creditors can realize their dues in full from any of the partners by attaching their personal property in case the firm’s assets are found to be inadequate to pay off its debts.
Limited Partnership: In this some partners have their liabilities limited to the amount of capital contributed by each. The personal property of a limited partner is not liable for the firm’s debts. However this limited partner cannot take part in the management of the firm.
So now the question is how to register a partnership firm in India. A set of steps need to be followed for this.
(Formation of Partnership firm Rules and Steps)
- Application of Registration of Partnership in Form No. 1 for partnership registration in India
- Duly Filled Specimen of Affidavit
- Certified True Copy of the Partnership Deed
- Ownership proof of the principal place of business or rental/lease agreement thereof
LLP is a form of corporate business vehicle that enables professional expertise and entrepreneurial initiative in order to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability and allowing its members to be flexible for organizing their internal structure as a partnership.
It requires a minimum of two partners for formation of an LLP. There will not be any limit to the maximum number of partners. It is mandatory for every designated partner to obtain a “Designated Partner’s Identification Number” (DPIN). In comparison to Limited liability Company, LLP is a professional business whereas the former is a small business with few shareholders.
For Limited Liability Partnership advantages and disadvantages are there and one needs to choose wisely which form of business he needs to opt for. Also if one does not want to disclose any secret of his business idea he can plan to start a One Person Company.
Key Characteristics of Limited Liability Partnership, India
- Separate legal entity from its Members.
- Benefit of limited liability for Members.
- Taxed as a partnership
- Organizational flexibility of a partnership
- Governed by agreement (“LLP agreement”)
- Accounting and filing requirements: similar to company.
Registration of LLP in India
- Name Reservation
- Incorporate LLP (e-form 2)
- LLP Agreement
One Person Company
Under Companies Act 2013 One Person Company is a private company by an Indian Owner having only one member. An additional member is required as a nominee. However, this is available for a business with a capital up to Rs. 50 lakhs and a turnover up to Rs. 2 crore. But the moment turnover goes beyond Rs. 2 crores or the capital increases to more than 50 lakhs the one person company should be converted into a private company.
For starting a business with more than one person, Private Limited Company is the option which provides certain added advantages as well.
Key Characteristics of One Person Company
- One member as a shareholder
- Limited Liability, More Opportunities adds to the advantages of One Person Company.
- Separate Legal Entity
- Minimum Compliances
OPC for Entrepreneurs
A One Person Company (OPC) is a combined package of a Sole Proprietorship business and a Company, borrowing the best of both worlds. In cities like Delhi, whenever someone thinks to start a business, he needs to have an idea that too very much creative and innovative to proceed further. One person Company serves this purpose quite well for them.
It makes the person execute his idea without sharing his secrecy in business before hand with someone else. With just one member, these companies enjoy certain privileges or exemptions as compared to other companies.
- Filing of INC-1for name reservation
- Filing of INC-2 for incorporation of OPC
- DIR-12 to be filed along with INC-2
- Issue of certificate of incorporation by RoC
Private Limited Company
Private Limited Company, India is a privately held small business entity by an Indian Owner. This type of business entity limits owner liability to their shares, limits the number of shareholders to 50, and restricts shareholders from publicly trading shares.
There is a minimum requirement of two shareholders for starting a Private Limited Company and the number can extend maximum from fifty to two hundred beyond which is not permitted.
Key Characteristics of Private Limited Company
- Limited Liability
- Perpetual Succession
- Separate Legal Entity
- Easy transferability of shares
Scope For Entrepreneurs
Before starting your enterprise, you need to see which option is most suitable for you. A private limited company provides entrepreneurs to enjoy the benefit of limited liability with more expert knowledge because it requires more than one person for its incorporation. So a good team also leads to better pooling of resources and risks also to be shared. A Private Limited Company registration requirement also needs to be taken care of.
However if someone plans to start a business making his shares available for public, he can opt for Public Limited Company.
How to open Private Limited Company
- Obtaining Director’s Identification number (DIN) and Digital Signature Certificate (DSC)
- Name Approval
- Drafting MoA &AoA to register Private limited Company
- Obtaining certificate of incorporation by RoC.
Public Limited Company
A public limited company, India is the standard legal designation of a company which offers shares to the general public and has the benefit of limited liability. It requires a minimum of 7 shareholders to form such a company, assuming that it has a lawful purpose.
It is a company whose securities are traded on a stock exchange and can be bought and sold by anyone. Public companies are strict in their regulation, and are required by law to publish their complete and true financial position so as to enable the investors to determine the true worth of its stock (shares).
To start a business with a single owner Proprietorship Firm is the option for entrepreneurs but unlike a company proprietor cannot enjoy the advantage of limited liability.
Key characteristics of Public Limited Company
- Headed by Board of Directors
- Limited Liability
- Easy trading of shares (between members and people trading in stock exchange)
- Perpetual succession
- Strictly regulated by the law
The benefits of a Public Limited Company to Indian Owner, India are enough to attract an entrepreneur. Here, transferability of shares is easy and hence it provides the scope to Public Limited Company to raise capital from General Public through selling its shares or debentures or accepting fixed deposits. After observing Public Limited Company, advantages and disadvantages, one can easily opt for Public Limited Company.
How to form a Public Limited Company?
- Obtain DSC & DIN
- Apply for name approval
- Submission of application of incorporation along with the necessary documents to Registrar Of Companies
- Apply for certification for commencement of business
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