Business Formation, Business Registration

Alert Founders! Top 15 Business Registration Questions this Year


This year is seeing the most remarkable changes, be it GST, AADHAR, RoC Filing penalties etc. One thing that we all can agree upon is our nation is shifting towards transparency, which is great. Founders this is the right time to take the right decision by asking the right question, without any due, bring you the Top 15 Business Registration Questions this Year.

 1. How do I start a business in India?

  • The first step to starting a business in India is the registration of a business entity. Any form of the entity can be chosen and registered with the relevant government department.
  • Once the entity is registered, the applicable tax and other registrations need to be done in the name of the entity.
  • Exceptional cases, Sole Proprietorship and Partnership firm do not have business registration.

2. What are the different types of business entities?
For a for-profit business, there are primarily five types of business entities in India:
  • Public Limited Company
  • Private Limited Company
  • Limited Liability Partnership (LLP)
  • Partnership
  • One Person Company (OPC)
  • Proprietorship
  • While the first four types (Public Limited, Private Limited, LLP, and Partnership) require more than one promoter, OPC and Proprietorship are the types of entity applicable when there is only one promoter.
  • Non-Profit Organizations (Sec. 25 Companies)

3. Which entity is best suited for me?

The nature of the entity depends on your future plans, scale, and nature of the business. In the list below, we have shared a general guideline for the types of business the different entities are best suited for.

  • Sole Proprietorship
    1. Small Traders & Merchants where there is only single founder in unorganized sector
    2. Single founder testing the market
  • Partnership Firm
    1. Small Traders & Merchants where there are 2 or more in unorganized sector
    2. Has lost the relevance otherwise after introduction by LLP
  • One Person Company
    1. Single Promoter who wishes to take advantage of Limited Liability
    2. Suitable only for small businesses
  • Limited Liability Partnership
    1. For businesses started by 2 or more founders
    2. If there is no need of equity investment for the company
  • Private Limited Company
    1. Scalable Businesses started by 2 or more founders
    2. If Funds are to be raised in lieu of Equity shares of the company

4. What are the advantages and disadvantages of a Private Limited Company?

Advantages
  • Very easy to issue fresh shares and raise equity funding
  • Easy to offer and manage equity to the new promoters or ESOP to the employees
  • Easy for investors or shareholders to exit the company by selling their shares
  • More Credibility in the market
  • Limited liability of the promoters or shareholders

Disadvantages
  • Compliances are relatively higher than the other entity types
  • Low Tax Benefits
  • In case the business needs to be closed down, a cumbersome process has to be completed

5. What are the advantages and disadvantages of a Limited Liability Partnership (LLP)?

Advantages
  • Lesser compliances since the working is governed by the Partnership deed
  • Tax benefits like no dividend distribution tax and no tax on loans to partners
  • Limited liability for the partners
Disadvantages
  • Very difficult to raise funding on fresh equity
  • Extremely difficult to offer Shares/ ESOPs to employees or other stakeholders
  • Selling of the shares of one of the Partners is not possible

6. What are the advantages and disadvantages of a Partnership?

Advantages
  • Easy to incorporate
  • Legal way for group of individuals to conduct business

Disadvantages

  • Unlimited Liability among partners
  • The firm does not have separate legal existence
  • Extremely unlikely to raise equity capital or offer equity to any other stakeholder

7. What are the advantages and disadvantages of a One-Person Company (OPC)?

Advantages
  • Limited Liability
  • Allows to have only one promoter
  • Name recognized by MCA
Disadvantages
  • Impossible to issue fresh equity and get funding in lieu of Equity
  • Once the transaction crosses INR 2 Crores, it is compulsory to convert the company to Pvt Ltd Company or Public Company
  • Compliance similar to that of a Private Limited Company


8. What are the advantages and disadvantages of a Proprietorship

Advantages
  • Easiest way to start a business
  • No separate registration of the company is required. Only the applicable tax and other registrations, as applicable will be needed to operate the business.
Disadvantages
  • No Legal difference between the Proprietor and the company
  • Unlimited personal liability
  • Impossible to accept equity investment

9. What is a Public Limited Company?

A Public Limited Company is a Company which is limited by shared and has no restrictions on the maximum numbers of shareholders. It can be formed with a minimum of seven members and three Directors. It should be registered with the Registrar of Companies of the particular State under the Companies Act, 1956.

Such type of Company can offer its shares to the Public, accept deposits from it and there is no restriction on the transference of shares.However, minimum share capital requirement for such a Company is Rs.50, 000.


10. I want to start a venture with my friends. Which type of business entity is best suited for me?

In case you are looking to raise equity capital or offer ESOP to your employees in the future, Private Limited Company will be the best-suited entity for you. However, if you do not wish to raise equity capital or offer ESOP to the employees, you can opt for a Limited Liability Partnership or a simple Partnership depending on the financial liability or the nature of the business.


11. I am looking at starting my business. I do not have any cofounders. Which is the best suited entity for me?

In case you want to limit your personal liability and secure the name with the MCA, you should opt for a One Person Company. However, you are more interested in keeping the registration and compliance processes similar; you can opt for Proprietorship firm.


12. Three of us are looking at starting a business. We will be funding it ourselves and not raising any external funding. Which is the best suited entity for us?

You can opt for either a Private Limited Company or a Limited Liability Partnership or a Partnership firm. The choice should depend on the following factors:

  • Exposure to liabilities the shareholders want to take
  • Whether you want to offer ESOP to employees or not
  • Extent of regulatory compliance you want to expose your entity to
  • Whether you want to make the business a going concern or have the existence of entity dependent on the partners. A Private Limited Company is a going concern.

 13. Can I register as one entity and change it to another later?

Presently, following conversions are available by various clauses of Companies Act

  • A Partnership firm registered according to Indian Partnership Act – 1932, can be converted to an LLP
  • A Private Limited Company can be converted to an LLP
  • Please note that the name will now start ending with LLP instead of Pvt Ltd. For e.g., your present ABC Pvt Ltd., should be renamed ABC LLP.
  • OPC has to be compulsorily converted to a Pvt Ltd Company, either if Paid up Capital is increased beyond Rs.50 Lac or if Annual Turnover of immediately preceding three consecutive financial years exceeds two crore Rupees.

14. I am testing waters with an idea right now and am not sure if this is something that will work. What kind of entity suits me the best?

Though this will depend on the nature of your business and the tax and other license registrations that need to be done, you can explore starting with a Partnership or Proprietorship (depending on the number of promoters). Once you have made up your mind and want to raise capital to invest further in the business, you can either convert it or register a new entity.

Please note that in case you decide to start a new entity, you will have to get all the registrations done again and the financial track record cannot be carried from the earlier entity, unless a conversion or acquisition happens.

15. What are the differences between the types of entities – Private Limited, Limited Liability Partnership (LLP), Partnership, One Person Company and Proprietorship?


 

Sole Proprietorship

Partnership Firm

One Person Company

Limited Liability Partnership

Private Limited Company

Limited Liability

No

No

Yes

Yes

Yes

Multiple Partners

No

Yes

No

Yes

Yes

Ease of Incorporation

Very Easy. No separate Registration

Easy. Registered under Indian Firms Act – 1936

Difficult. Registered under Indian Companies Act – 2013

Moderate. Registered under Indian Companies Act – 1956

Difficult. Registered under Indian Companies Act – 1956

Compliance

Very Less Compliance

Very Less Compliance

Moderately Simple Compliance

Moderately Complex Compliance

Complex Compliance

Ease of allotting shares

Not Possible

Not Possible

Not Possible

Very Difficult. Almost impossible

Very Easy.



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