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    How to Register a Company in India : A Complete Guide

    Published Mon, 12 Sep 2022 | Updated Mon, 12 Sep 2022

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    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.

    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. 

     Detailed Comparison between different types of entities:

     

    S. No.

    One Person Company (OPC)

    Limited Liability Partnership (LLP)

    Private Limited Company

    Public Limited Company (PLC)

    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

     

    Suitable for

    • Single owner
    • Low investment businesses
    • Service-oriented businesses
    • Medium to High  turnover businesses
    • High turnover businesses

    Tax advantages

    • Under Startup India scheme, tax holiday for 3 years
    • Higher benefits on depreciation
    • No tax on dividend distribution
    • Tax benefits on depreciation
    • Under Startup India scheme, tax holiday for 3 years
    • Higher benefits on depreciation
    • No tax on dividend distribution
    • Tax exemptions

    Legal compliances

    • Business tax returns  to be filed
    • Limited ROC compliance
    • Business tax returns  to be filed
    • ROC Annual Returns  to be filed
    • Business tax returns  to be filed
    • ROC returns  to be filed
    •  Audit is compulsory
    • Business tax returns  to be filed
    • Tax and Secretarial Audits are compulsory

    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

    How to select the suitable type of company?

    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.