What kinds of company structures exist in India?
An OPC is the best way to start a company if there exists only one promoter or owner. An LLP is established under the Limited Liability Act, 2008 with the Registrar of Companies. Other business structures include Sole proprietorship, Hindu Undivided Family, and Partnership firms.
What are the types of business structures in India?
Let’s try and understand the types of business structures available in India. Here is a list of some of them:
One Person Company (OPC)
Recently introduced in the year 2013, an OPC is the best way to start a company if there exists only one promoter or owner. It enables a sole proprietor to carry on his work and still be part of the corporate framework.
Limited Liability Partnership (LLP)
An LLP is a separate legal entity where the liabilities of partners are only limited only to their agreed contribution. An LLP is established under the Limited Liability Act, 2008 with the Registrar of Companies (ROC).
Private Limited Company (PLC)
A PLC in the eyes of the law is regarded as a separate legal entity from its founders It has shareholders (stakeholders) and directors (company officers). Each individual is regarded as an employee of the company.
Public Limited Company
A Public Limited Company is a voluntary association of members which is incorporated under company law. It has a separate legal existence and the liability of its members are limited to the shares they hold.
You can choose what business structure suits your business needs best and accordingly register your business.
Other forms of business structures include Sole proprietorship, Hindu Undivided Family, and Partnership firms. Please bear in mind, that these structures do not come under the ambit of company law.
Why is it essential to choose the proper business structure?
Because your income tax returns will rely on the company structure you pick, it is essential to make an informed decision. When establishing your firm, keep in mind that various business structures need varying degrees of compliance. For instance, a single owner is simply required to submit an income tax return. Nonetheless, a business must submit both an income tax return and yearly filings with the Registrar of Companies.
Annually, the books of account of a business must be audited. These regulatory requirements necessitate spending money on auditors, accountants, and tax filing specialists. When considering company registration, it is crucial to choose the most appropriate business structure. An entrepreneur must have a clear understanding of the types of legal compliance with which he or she is prepared to comply.
Despite the fact that certain company forms are more investor-friendly than others, investors will always prefer a legal and acknowledged corporate structure. An investor may be hesitant to provide money to a lone owner, for instance. Alternatively, if a solid company concept is supported by a recognised legal framework (such as an LLP, corporation, etc.), investors will feel more comfortable investing.
How do you pick a business structure when registering a company in India?
Before deciding on a company structure, there are certain issues that every entrepreneur must address.
How many proprietors or partners will your company have?
If you are a single individual with all of the necessary startup capital for your firm, a one-person company would be great for you. Alternatively, if your firm has two or more owners and is actively seeking investment from other parties, a Limited Liability Partnership (LLP) or a Private Limited Company (PLC) might be the ideal choice for you.
Should your initial investment affect the company structure you choose?
If you want to minimise your startup costs, it might be prudent to form a sole proprietorship, HUF, or partnership. But if you are certain that you will be able to recoup the establishment and compliance fees, you may choose a one-person company, a limited liability partnership, or a private limited company.
willingness to take full responsibility for the business
The liability of business forms like sole proprietorships, HUFs, and partnerships is limitless. This implies that, in the event of a loan failure, the whole amount will be recovered from the members or partners according to their profit-sharing ratio. In such situations, the danger to personal assets is significant.
Companies and LLPs, however, have a limited liability provision. This implies that the responsibility of its members is limited to the amount of their contributions or the value of their shares.
Rates of Income Tax Applicable to Businesses
Normal income tax slab rates are applied to both sole proprietorships and HUFs. In the event of a sole proprietorship, business revenue is added to the owner's other income. Other entities, such as partnerships and corporations, are taxed at a rate of 30%.
Plans to get funds from investors
As previously said, it is difficult to get capital if your company structure is not registered. When it comes to investments, LLPs and private limited companies are reputable entities. Ensure that you pick the correct structure and seek the assistance of an expert so that you may register under appropriate direction.