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Types of Companies and their Procedure for Incorporation in India

When it comes to company registrations in India, there are many different options available for you to choose from. for instance, you can register your business in a sole proprietorship, a partnership, Limited Liability Partnership, a Private Limited Company, or a Section 8 Company, etc.

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Looking to Start a business but confused which type of company to incorporate? Get to know about everything in one place.

The one you should choose would vary depending upon your immediate as well as long-term goals. Some of the key questions one faces in the process are:

  1. No. of owners / Stakeholders
  2. Initial Investment
  3. Tax Rate on your profits
  4. Share in assets but more importantly liabilities that may arise in the future
  5. External Funding requirements

Each type of company has its own unique set of advantages and disadvantages. Each of them has a different set of compliances right from incorporation up to liquidation. We discuss each of them in a step-by-step manner.

Understanding the Different Types of Company Incorporations in India

ParticularsProprietorshipPartnershipOne Person Company (OPC)Limited Liability Partnership (LLP) Private Limited companyPublic Limited Company
Minimum No of Person12Min 2 Person2Min 2 Person3 (In Unlisted Co.)
Director and Nominee Director7 (In Listed Co.)
Maximum No of Person1202Unlimited200Unlimited
Legal Status Not a Separate Legal EntityNot a Separate Legal EntitySeparate Legal EntitySeparate Legal EntitySeparate Legal EntitySeparate Legal Entity
Foreign NationalsNot AllowedNot AllowedNot AllowedMinimum 1 Resident Designated Partner NeededMinimum 1 Resident NeededAllowed
Members LiabilityUnlimitedUnlimitedLimitedLimitedLimitedLimited
RegistrationNot RequiredOptionalRequired in ROCRequired in ROCRequired in ROCRequired in ROC
Applicable ActUnlimitedPartnership Act, 1932Companies Act, 2013Limited Liability Partnership Act,2008Companies Act, 2013Companies Act, 2013
ExistenceCan be dissolved by ProprietorDependent on PartnersCan be dissolved Voluntarily or by Regulatory AuthoritiesCan be dissolved Voluntarily or by Order of Company Law BoardCan be dissolved Voluntarily or by Regulatory AuthoritiesCan be dissolved Voluntarily or by Regulatory Authorities
Transferability of OwnershipNot transferableNotTransferableTransferableTransferable Transferable Transferable
Name AvailabilityNo approval requiredNo approval required.To be approved by ROC. Name ends with One Person Company or OPCTo be approved by ROC. Name ends with LLP.To be approved by ROC. Name ends with Pvt. Ltd.To be approved by ROC.
Size of BusinessAnyAnyBusiness upto 2 crores.Service Oriented Business. Business with low turnover neededBusiness having high turnover and require external source of funding.Any
Books of AccountsSpecified Profession-If gross receipts exceed 1.5 lacs in preceding 3 years.If Profit shown is below the limits as per Sec 44AD.MandatoryMandatoryMandatoryMandatory
Business or Profession-If income exceeds 2.5 lacs in any of preceding 3 years
Audit RequirementsTax audit mandatory if turnover exceeds 2 croresIf 44AD is adoptedProfession- If turnover exceeds 50 lacs.Tax Audit MandatoryStatutory Audit required if turnover exceeds40lacs or capital contribution exceeds 25 lacsTax Audit MandatoryTax Audit Mandatory
Business-If Turnover exceed 2 crores
Income TaxSubmit Income Tax ReturnsSubmit Income Tax ReturnsSubmit Income Tax ReturnsSubmit Income Tax ReturnsSubmit Income Tax ReturnsSubmit Income Tax Returns
Tax RatesIndividual Slab Rates30%25%30%25%25%
ROCNANAAnnual Filings with ROCAnnual Filings with ROCAnnual Filings with ROCAnnual Filings with ROC
Ease of Raising FundsNANAModerate Moderate EasyEasy
Foreign OwnershipNot allowedNot allowedNot allowedInvestment allowed with RBI & FIPB approvalAllowed under Automatic route approvalAllowed

Private Limited Company Registration

A private company is a separate legal entity governed by the Ministry of Corporate Affairs (MCA).

Private Limited Company registration in India offers a range of benefits to entrepreneurs. These include:

  • Limited Liability– This means in case of default only company assets can be sold and there is no claim against the personal assets of shareholders.
  • Ease of transfer of shares
  • Funding is Easier

To start a private limited company, you must first choose a name for the company. Ideally, the name should be simple, unique, and suggestive. Name availability is to be checked by the Ministry of Corporate Affairs. Trademarks can be applied to protect the name of your business.

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Documents Required for Incorporating a Private Limited Company

1. Minimum 2 Shareholders and Maximum 200 Shareholders
2. Obtain Digital Signatures for minimum 2 Directors
3. Proof of Registered Address
4. DIN for 2 Directors
5. Consent from the Subscriber or Director

More about a Private Limited Company

  • A Private Limited Company is governed by the Companies Act 2013.  The profit of the Company is taxable at 25%. Shareholders and directors can withdraw profits in the form of salaries.
  • A Private Limited Company can be formed within 10-15 days.
  • It is required to hold general meetings and board meetings, appoint auditors, and do the annual filings. Hence, the level of compliance is more in private limited companies.
  • Dissolution of Private Limited Company is a difficult process. The Company should be inactive for a minimum period of 2 years and all statutory dues should be paid off.
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Limited Liability Partnership Registration​

Limited Liability Partnership is a new form of business entity. This form of business offers a lower compliance cost and high flexibility. Unlike a Private Limited Company, in an LLP there is no additional tax at the time of distribution of Profits among the partners. Also, the partners’ personal assets are protected from creditors just like shareholders’ private assets are protected in a private limited company.

The primary regulatory authority for Limited Liability Partnerships is the Ministry of Corporate Affairs. 

Documents Required for Incorporating an LLP

  1. Minimum 2 Partners, No Limit on Maximum No
  2. Obtain DSC for 1 Partner
  3. Proof of Registered Address
  4. DIN for both Partners
  5. Consent from the Subscriber or Director

More about LLPs

  • LLPs are governed by the Limited Liability Partnership Act of 2008.
  • LLP is required to file annual statements with MCA and file its Income Tax Return. Unlike Private Limited Company meetings are not required to be held. Profit of LLP is taxable at 30%. 
  • LLP can be formed within 10-15 days.
  • Dissolution of LLP is a difficult process. It should be inactive for a minimum period of 2 years and all statutory dues should be paid off.
 
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partnership-2021-08-29-09-14-53-utc

One-Person Company Incorporation

A One-Person Company is a form of a private limited company. This business entity is based on the concept of sole ownership and can be easily registered. In addition, it can provide many benefits to its members.

To register a one-person company, the first step is to decide on a name. The name should be unique, preferably one that does not duplicate a trademark. The name availability is to be checked with MCA. 

Documents Required to Register a One-Person Company

  1. Minimum 1 shareholder, One Nominee(Nominee is a person who shall, in the event of the Death of member or his incapacity to enter into contract, become the member of OPC.
  2. Obtain DSC for 1 Partner
  3. Proof of Registered Address
  4. DIN for both Partners

More about a
One-Person Company

One of the primary benefits of this type of business is that it offers complete control to the owner. The owner has the right to all profits and income of the company but is not liable for any loss. Moreover, the owner’s liability is limited to the invested capital.

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Partnerships Firm Registration

Partnerships firm is a great way to start a start a new venture. It is easy to form with low formation and compliance cost. 

Documents Required to Register a Partnership

  1. Minimum 2 Partners and maximum 20 partners
  2. Partnership Deed with Profit/Loss sharing Details, Details of Business, Address of Business
  3. PAN of partnership firm
conceptual-of-partnership-2021-08-30-00-59-21-utc (1)

More about a Partnership

  • There can be a variation based upon the working and nonworking partners, partners who would draw profits and the one who would draw only remuneration or a combination of both.
  • A partnership firm is a legal entity with unlimited liability.  This means that the personal property of partners can be taken to repay the loans in case of default.
  • Profits of partnership Firm is taxable at 30%. Partners do not pay taxes on firms profits.
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Public Limited Company Registration

A Public Limited Company is a legal entity that has limited liability. To put it simply, a public limited company is a next level to a Private Limited Company. While all the basic advantages and disadvantages of private limited are applicable to public limited companies.

Let’s first discuss what’s different:

  1. A minimum of 7 shareholders and 3 directors are necessary.
  2. minimum paid-up capital of Rs 5 lakh or such a higher amount as prescribed under the act
  3. A subsidiary of a public limited company automatically becomes a public limited company
  4. Public Limited Companies can raise funds from the general public.

More about a Public Limited Company

  • Public limited companies are subject to stricter rules, regulations and compliances.
  • To set up a public limited company, you must first identify a suitable name. You can use various tools to discover the perfect name for your new company. The Ministry of Corporate Affairs (MCA) will approve the name.
  • After you have decided on a name, you can begin incorporating the business. A public limited company has several benefits over a private one. It can offer shares to the public and can raise secondary finance through a listing on a stock exchange.
  • You can register a public limited company online. The process requires you to fill out an application form. This process is done through the MCA website. All the necessary documents are required to be attached along with the application.
  • One of the main benefits of a public limited company is that its shareholders are protected from liability. Unlike other types of companies, the shareholders are not liable for the debts incurred by the company.
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Sole Proprietorship Incorporation

A Sole Proprietorship is a legal form of business that is managed by a single person. This is a popular business model for small businesses. It offers flexibility and is a low-cost option for those who are interested in starting a small business. However, this business model has several restrictions.

Unlike other types of business, sole proprietorships are not legally incorporated. This means that they are governed by the laws of the state they are located in. They must comply with these laws and secure licenses for their businesses. Moreover, the financial records of sole proprietorships are private and are not easily accessible to government officials.

portrait of a successful entrepreneur in his company

To start a sole proprietorship, you must have the required funds to meet the startup costs. You can use your savings, personal funds, or a loan from a financial institution.

If you are a resident of India, you can start a sole proprietorship. The PAN of the individual running the business is also the business PAN. 

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Section 8 Company Incorporation

Section 8 company registrations in India are available for any individual or non-profit Organization. The main objectives of a section 8 company are to promote the welfare of society, education, research, and environmental protection. These organizations have greater flexibility and impact on their communities.

To register a section 8 company, you need to obtain a license from the Registrar of Companies (ROC). ROC will issue a unique Director Identification Number (DIN) to your company. This number has no expiry date.

A Section 8 Company must follow the same annual compliance as a normal company. If the compliances are not met, the company may be struck off the register. When the compliances are completed, the company can remain active. But if the company fails to meet the annual compliance, it can become dormant.

Once the company is registered, it must comply with the Companies Act, 2013, the Income Tax Act, and the GST Law. It must also file returns with the Registrar of Companies.

The profits of a Section 8 Company are used for promoting its underlying objectives. They are not distributed to the shareholders. However, donations to the company are eligible for tax exemptions.

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