Start Up Business In India

Start-up ecosystem is the most talked about ecosystem now in the business industry. Most of the Governments are supporting start-up because of rapid disruption business models. Start-ups are raising most of the funds through private investors from India and overseas. Government has dedicated various schemes for start-ups. Central as well as State Government are trying to keep the compliance burden and tax burden low. Startup Business in India are providing hand holding support, fast track IPR registration, Income Tax Exemptions among others. Our custom designed services for startups provides them with all support at a reasonable fees wherein our team remains available 24*7 for immediate support. From getting the business registered to preparing future forecasts to getting all necessary departmental approvals, our team does it all. We also provide support in preparing pitch deck presentation.

Before starting a business, the most important thing to decide is the form of Business. There are various forms of starting a business in India. Each of the forms of business has its own benefits as well as limitations. Various factors including the nature of the business, level of business, category of product/ services, the scale of business, target customers/ consumers play a significant role in deciding which form of business be select. There are various regulatory as well as taxation factors which also lays the road in deciding for the type of business.  

This article provides an insight into the forms of various business structures in India.

FORMS OF BUSINESS IN INDIA

1) Sole Proprietorship Firm

What it is?
This is the most common and easiest form of business as no registration is mandatory under this. However, the proprietor needs to obtain a trade license from the local Municipal Authority. The proprietor is the sole owner and decision-maker of the business. The proprietor/owner manages, owns his business, and exercises the power of decision making. All the personal and business assets and liabilities of proprietors are considered as same. Any other registration under specific laws will be applicable on case to case basis if any.

Who can opt for such type of business?
Any individual in India can carry his business in the Sole proprietorship form. There is no restriction for setting up the sole proprietorship business. However, technically a minor cannot set up the business as for obtaining a trade license or opening a bank account for the operation of its business, he cannot enter into a contract as per the Indian Contract Act.

Basically, a person of the age of 18 years and above and having a valid PAN can start his own sole proprietorship firm.

To know more about the licensing and registration requirement about sole proprietorship firm, click here.

2) Partnership Firm
It is a form of business with two or more people who have agreed to share the profit of business. As no cumbersome legal formalities are required, this business can be formed easily and also managed easily. Partnership firms are governed by Partnership Act, 1932 in India. Registration of Partnership firm is also not mandatory. Partners may decide to get its firm registered or they can continue without being registered. However, firm will be deprived of the legal benefits if its unregistered.

Any partnership firm may start its business by obtaining trade license under shops and establishment Act and a PAN Card in the firm’s name.

Any two or more person can set up a partnership firm in India.

3) Limited Liability Partnership (LLP)

What it is?

The major drawback of running business in form of partnership firm is that the partners liability for default is unlimited which is why a new form of operating business originated in India after U.K., USA, Australia and Germany where one partner will not be held responsible for another partner’s misconduct in the business. This combines the features of running business in a flexible manner as that of a partnership firm and also an advantage of limited liability, of a company at a low compliance cost.

Doing business in LLP form allows the partners to have a separate legal entity as LLP. LLP firms are governed by LLP Act, 2008. This form of business is being opted by various businessman due to its attracting benefits.

Who can opt for such type of business?

This form of business is quite useful for the small and medium enterprises who wants to take advantage of corporate form but with low compliance cost and also of a partnership firm without having unlimited liability.  This form of business (LLP) is more preferred in services sector particularly by professionals like Company Secretaries, Chartered Accountants, Cost Accountants, Advocates and other professionals. LLP form of business is helpful for entrepreneurs, service providers and professionals to meet the requirements of dynamic business environment and operate their business in an efficient manner.

4) Company Form

What it is?

Corporate form of business is considered to be most organised form of business. Before starting business in corporate form, there are certain things need to be kept in mind. The most important feature of company for of business is that company possess its own legal entity and is considered as separate legal entity from its owners. Companies in India gets registration under the Companies Act, 2013 and will be governed by Companies Act under Ministry of Corporate Affairs, Government of India. However, banking, electricity, insurance companies are governed by their respective specific Act(s). There are many benefits as well as drawbacks of operating business in corporate form. Compliance cost in corporate form is higher as compared to other form of business. Companies carrying business in India are broadly classified into 2 categories.

Private Company

Private Limited Company is those where the owners are close family members or friends. It doesn’t have any interest or stake of public at large. Private limited company is best suited for startups, family business, MSMEs etc. because of its low cost, less regulatory compliances and hurdles. Such company cannot raise funds from general public but can raise funds from Angel investor or Venture capitalist or through other private funding. Private Company requires minimum of 2 members and 2 directors.

Recently, in India, a separate concept of One Person Company has been introduced wherein even one person and single director can carry on his business in corporate form.

ONE PERSON COMPANY (OPC) : is basically a private limited company and all provisions of private company applies except few requirement as specifically applicable to it. The purpose of operating business in this form is similar to sole proprietorship but by having a separate legal entity. OPC has a less complex structure with a lesser compliance requirements and burden.

PRODUCER COMPANY : The economy of India is an agricultural centric economy. Around 60% of the population depends on agricultural activities for their livelihood. But, the primary producers and farmers have had a long struggle in India.

A producer company can be defined as a legally recognized body of farmers/ agriculturists with the aim to improve the standard of their living and ensure a good status of their available support, incomes and profitability. Under Companies Act 1956, a Producer Company can be formed by 10 individuals (or more) or 2 institutions (or more) or by a combination of both (10 individuals and 2 institutions).

Public Company
Forming a public limited company requires higher no. of directors, members, legal compliances and also the set-up costs. Governing provisions under Companies Act are more stringent for Public Limited Company which also sets the compliance cost high. However, there is a benefit that public company can raise money from public after requisite approvals.

Who can opt for Company form of business?
Person who is looking to carry its business in an organised and more professional manner must go for this option. Any person, whether individual or non-individual or Indian or foreigner, may incorporate a company in India. These were the form of business which can be opted with profit motive. However, there are many organisations working as non-profit organisation or as charitable trust or for welfare of the public. There are separate provision and type or organisations which can be incorporated to carry on these activities. These special social welfare or charitable organisations also enjoys many taxation or other benefits. Let’s go through the form of organisations through which such kind of activities can be carried out in India.

Section 8 company

What it is?

Any person who are planning to promote Art, Religion, Charity, Education, Social Welfare etc. can establish section 8 company. Section 8 company is known as so because it finds its existence form Section 8 of the Companies Act, 2013. They are non-profit motive organisations however the revenue or profit (if any) from the activity are need to be utilized for the objectives of company and not for distribution as a dividend among its members.

Section 8 company is governed under Companies Act but enjoys relaxation of various regulations and compliance for being a Section 8 company. Also, the income earned is exempted under Income tax act along with other tax benefits offered to it and its donor.

Who can opt for such type of organisation?

Any person willing to contribute for the welfare of the society or to promote art, education, charity etc without the expectation of profit can proceed with non-profit organisation in Company form. This type of organisation are also known as Section 8 company.

There are other form of organisations also operating in India and can be incorporated for social welfare purpose like TRUST, SOCIETY etc. Any person fulfilling the criteria to incorporate such organisations may proceed with the same.

India is one of the fastest growing economies in the world with plenty of opportunities for business startups. Therefore, many new players are always looking to enter the Indian markets or expand their existing businesses to leverage India’s competitive advantage. Whether it be a foreign company eyeing a business set up in India, or an Indian company looking to expand, The Companies Act, 2013 governs all such entities and makes it necessary for them to register. We at PAA cater to all the requirements regarding such company formation in India.

Establishing a new business seems like a challenging proposition. Yet, it can reap great benefits for both the company and the economy at large. With many entities looking to set up enterprises, there are a few things to consider when you’re going for registering your business in India.

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