Published Sat, 03 Jun 2023
While starting a Company in India, one of the most important question that arises is “What type of Company to register?” Under the Indian Companies Act, Indian and Foreign investors can register several types of Companies. Choosing the perfect type of Company is as important as any other business-related activities. The perfect choice of the entity helps an entrepreneur to achieve the business prospects efficiently. A right business structure is essential for effective management, compliance and tax optimisation. Various business structures available for doing business in India by a foreign entity include Public/ Private Company, Limited Liability Partnership, Liaison Office, Branch Office and Project Office. So, before jumping onto the process of Company registration in India, let’s know a bit about the types of companies.
Commonly four types of Company structures are prevalent in India for Residents and Non residents–
One Person Company: The Concept of One Person Company (OPC) was first introduced under the Companies Act, 2013 for providing an opportunity to any individual entrepreneur to register his or her company and availing the benefit of limited liability and the status of a separate entity.
Limited Liability Partnership: It is an advanced form of general partnership where Liability of each partner is limited to their pre-decided contribution. This form of business serves as a hybrid between a Partnership and a Company.
Private Limited Company: A Private Limited Company is the most conventional and preferred form of business structure in India. This type of Company offers the various advantages like Separate Legal Entity, Limited Liability, Perpetual Succession, etc.
Public Limited Company: A Public Limited Company is termed as a Voluntary Association of Members incorporated under the Companies Act, 2013. It offers a Limited Liability up to the shares it has offered to the general public. This type of Company is strictly regulated and has to comply with all the statutory compliance requirements in a timely manner.
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S. No. |
One Person Company (OPC) |
Limited Liability Partnership (LLP) |
Private Limited Company |
Public Limited Company (PLC) |
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Minimum No. of Shareholders/Directors/ Designated Partners |
One (1) Director and One (1) Shareholder |
Two (2) Designated Partners |
Two (2) Directors and Two (2) Shareholders |
Three (3) Directors and Seven (7) Shareholders
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Suitable for |
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Tax advantages |
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Legal compliances |
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Further, Business entities registered outside India (Foreign Companies) who wish to establish their presence in India for limited activities such as representative office, sourcing, technical and/or marketing support, import and export, etc may open a Branch Office (BO) or Liaison Office (LO) or Project Office (PO) in India subject to compliance of guidelines of Reserve Bank of India.
Liaison Office: Laision Office means a place of business to act as a channel of communication between the principal place of business or Head Office or by whatever name called abroad and entities in India but which does not undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel. For further details please visit our blog - Process to incorporate liaison office in India
Branch Office: The Branch Office is an office established by a foreign entity that is engaged in manufacturing or trading activities. A branch office is permitted to carry out the activities like: Export/Import of goods; Rendering professional or consultancy services; Carrying out research work, in which the parent company is engaged; etc.
For further details please visit our blog - Process to incorporate Branch office in India
Project Office: Project Office' means a place of business in India to represent the interests of the foreign company executing a project in India but excludes a liaison office. Setting up a project office is one of the ideal methods for foreign entities to establish their business presence in India if the object is to have a presence for a limited period of time for the sole purpose of execution of the project in India. For further details please visit our blog - Process to incorporate project office in India
For detailed Comparison of Liaison Office, Project Office and Branch Office in India please visit - Comparative analysis of liaison office , branch office and project office
Before proceeding with company formation, one needs to determine the right type of company suited for him. There are few aspects which need to be looked upon for deciding the suitable type of Company.
1. Ownership –
This is a very important aspect in terms of company formation.
a. If any person has made all the initial investments and wants to run the business single-handedly, then one person company would be the most ideal choice.
b. If any business has two or more owners and they are also seeking investment from other parties, then Limited liability partnership or Private limited company would be appropriate
2. Amount of Investment –
a. If anyone is looking to invest less in the business initially, then he should opt for partnership or sole proprietor business structure.
b. If one can invest in the business model that is self-sufficient to recover the setup and compliance costs, then they can opt for One person company, Limited liability partnership or Private limited company.
3. Liability of the members in company –
a. In Sole proprietor, HUF and Partnership firm, the liability of owners of the company is unlimited. It implies that, for the default loans, the money would be recovered from the owner or partners based on their profit sharing ratio. Thus, it increases the risk to the personal assets of the members.
b. In Limited Liability Partnership, Public Limited Company and Private Limited Company, the liability of the partners and shareholders is limited to their respective contribution or shareholding.
4. Difference in income tax rates -
a. The normal slab rates are applicable for HUF and Sole proprietorship. Though, the business income is clubbed with individual other's income in case of sole proprietorship.
b. There is fixed 30% tax rate for limited liability partnership, public and private companies.
5. Looking out for investors -
Unregistered companies aren't preferred by most of the investors. Investors are more attracted towards a structured business entity like Limited Liability Partnership and Private Limited Company. The perfect choice of business structure helps to gain more investors.
Below are the steps to register a Company India:
Step 1: Name Approval: The first and the foremost step in Registering a Company in India is reservation of name by filing SPICe+ Part A. The company is required to provide two names in order of preference. The names shall be supported with a rationale and objectives of the company to be pursued upon incorporation.
Step 2: Obtaining DSC and DIN: A Digital Signature Certificate (DSC) is mandatory for all the persons who intends to become a Director or Subscribers of the proposed Company.
Director Identification Number (DIN): it is mandatory for every Director to obtain DIN before being appointed as Director. The SPICE + form provides an option to apply for maximum 3 DIN.
Step 3: Filing an application in SPICE+ PART B, SPICE + MOA, SPICE+ AOA for incorporation of Private Limited Company with the Registrar of Companies for obtaining a ‘Certificate of Incorporation’
With effect from February 23, 2020, following additional services can be mandatorily obtained at the time of incorporation of the company itself by filing AGILE-PRO-S linked web form:
Step 4: Obtaining “Certificate of Incorporation” from Registrar of Companies.
The proof of identification and proof of address are considered as the most essential documents for company formation in India. Documents of all the directors and shareholders that are required to be submitted to the authorities are as under:
It is mandatory for all the companies to have a valid registered office in India to apply for the online Company registration. The documents required to confirm the presence of registered office in India are – Water bill/ Energy bill/ Property tax receipt. The documents shouldn’t be older than two months. The documents which are required for properties on Rent are Rent agreement// Letter of NOC from the landlord/ Sale deed/ Maintenance bill.
If one of the company's shareholders is a company based in India or abroad, the following documents must be submitted:
In case of Foreign Nationals:
Belonging to a Country that is a party to the Hague Apostille Convention (1961) - The documents shall be Apostille by a competent authority of the country where the document originates shall be notarized before the Notary (Public) of such country.
Belonging to a Country that is a participant of the Commonwealth of Nations – The documents shall be notarized by a Notary (Public) in that part of the Commonwealth.
Belonging to a country outside the Commonwealth and which is not a party to the Hague Apostille Convention (1961) - shall be notarized before the Notary (Public) of such country and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer empowered in this behalf under Section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948 (40 of 1948) or, where there is no such officer by any of the officials mentioned in Section 6 of the Commissioners of Oaths Act, 1889 (52 and 53 Vic.C.10), or in any Act amending the same;
There are several benefits of forming a company in India, out of which few are mentioned below:
Click here to download a detailed compliance checklist.
