Whether you’re on a planned growth trajectory or just getting started, the legal framework is a vital part of running a business. Every company in India must be registered under the Companies Act of 2013. To accomplish so, each company must be informed of its options and have a legal structure that has been approved by the Indian government. To run a business and flourish, one must choose the right legal structure from the many possibilities accessible.
When adopting the suitable legal form, the entity’s goals and the local and central legislation where it wants to create its foundation are aligned. The entity can adopt the best legal structure for attaining its goals if it has well-defined objectives.
The most prevalent types of Indian company structures, as well as their unique qualities, are given below to help you choose the best legal structure for your planned firm.
Types Of Business Structures In India
- Sole Proprietorship
- Partnership
- Limited Liability Partnership
- Private Limited Companies
- Public Limited Companies
- One-Person Companies
Sole Proprietorships
A sole proprietorship is a company run exclusively by one person. Many businessmen form small businesses under their names and run them as sole proprietorships. The owner of such an enterprise and the institution are considered the same. Starting a business as a sole proprietor requires no official registration in India.
While it is simple to register this firm, the proprietor is solely liable for all obligations. The sole proprietorship’s entire profit is in his or her hands as a result of such an arrangement.
For instance, there are no separate tax returns to file, and the proprietor’s income must be disclosed in the personal income tax forms.
Partnerships
A partnership firm is formed by two or more people who want to work together and make money. A partnership deed specifies each partner’s invested interest and profit-sharing percentages, as well as other aspects of the company’s activities.
The amount of liability that the partners are answerable for is limitless. It is not required to register a partnership, although it is highly recommended.
Limited Liability Partnerships
A Limited Liability Partnership is created by the Limited Liability Partnership Act of 2009. Partners in an LLP, unlike partners in a partnership firm, are not subject to unlimited business obligations.
Their financial responsibility for losses or obligations is limited to the investments they make. In a limited liability partnership, the partners are treated as separate legal entities.
Furthermore, because no partner is liable for the autonomous activities of other partners, individual partners are safeguarded from shared responsibilities stemming from another partner’s misbehavior.
Private Limited Companies
According to Section 2(68) of the Companies Act 2013, a private company is defined as “a company with a minimum paid-up share capital as may be necessary, and which, by its articles,
- limits the ability to transfer its stock
- except in the event of a one-person company, a maximum of two hundred members
- forbids any public request to subscribe for any of the company’s securities.’
The Private Limited Company is the company structure of choice for the majority of Indian startups and businesses with larger aspirations.
Public Limited Companies
Section 2(71) of the Companies Act defines a public company as “a company that is not a private company.”
A public limited company has at least 7 (seven) shareholders and a minimum paid-up capital.
After the firm is listed on a stock exchange, its shares can be freely exchanged. This type of company faces more legal restrictions than a Private Limited Company.
One-Person Companies
A “one person company” is described as a corporation with only one member, according to Section 2(62) of the Companies Act 2013. This is a revolutionary invention that enables businessmen to own and control their enterprises.
All of the shares can be owned by one individual, but the company must be registered with an additional nominated director.
The incorporation of the concept of a corporation into the legal system is expected to boost economic growth while also creating a considerable number of job possibilities.
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Guide on company registration in India
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