Type of Business Structures in India
If you’re confused between an OPC or LLP, then you need to read 3E Accounting’s type of business structures in India.
Compliance regulations in India can be quite complex and repetitive. Choosing your business structure is crucial as changing midway will be a costly and time-consuming affair. Consider matters such as the nature of your business as well as how much control you want to exercise. Weigh this up against liability issues and finance. The type of business structures in India are wide-ranging, and there is plenty to choose from.
Company registration in India requires applications to be submitted to the Ministry of Corporate Affairs (MCA). The types of entities that can be registered and incorporated are:
- Sole Proprietorship
- Partnership Firm
- Limited Liability Partnership (LLP)
- Limited Company – Private or Public Limited, One Person Company (OPC)
- Foreign Company
- Producer Company
- Non-profit Organization (NPO)
Sole proprietorship and partnership firms both do not require incorporation, only registration as a business. As such, they do not acquire a separate legal identity. Owners and partners have unlimited liability towards their business’ debts, and this places their assets at a greater risk.
Sole proprietorships are best for entrepreneurs starting small and wanting full control over the business. Investment is low, and compliance is more straightforward. Partnership firms have two or more partners and are collectively known as a firm. They are ideally suited for professional service providers, etc.
Both private and public limited companies need to be incorporated, which creates the company’s separate legal identity. The company can then do everything that a legal entity is entitled to, such as sign contracts, own property, etc.
Private limited companies can have no more than 50 shareholders and need a minimum of two directors and shareholders. This type of company cannot list or publicly sell its shares. A public limited company, however, can list on the stock exchange and raise capital by selling its shares to the public.
A One Person Company (OPC) is akin to a sole proprietorship except that it is incorporated as a company and has a minimum paid-up capital of INR 1 lakh. It acquires a corporate and separate legal identity, which limits the liability of its owner. Similarly, a Limited Liability Partnership is akin to partnership firms. Due to incorporation, an LLP acquires a separate legal identity and offers limited liability to partners based on their share capital.
Companies limited by shares can be private or public limited companies as well as OPCs. Ownership of the company is based on the number of equity shares held, and liability is limited to unpaid capital.
Companies limited by guarantees can be either private or public limited companies. Capital here is in the form of guarantees introduced by members, which is also the amount of liability.
Governed by Section 8 of the Companies Act, these are non-profit organizations (NPO) ideally suited for social welfare, charities, etc. Members are not paid dividends, and all profits are used towards the cause of the NPO.
Other types of companies include foreign companies and producer companies. Usually, in the form of a subsidiary company or branch office, foreign companies are registered as such where the foreign shareholding is more than 50%. Producer companies relate more to the agricultural field, and the liability of members is limited to unpaid share capital.
3E Accounting is ready to assist you in incorporating your company. The variety and type of business structures in India offer an overwhelming choice. There is also the statutory minefield that needs to be navigated. We provide expert help and assistance to ensure your company incorporation process is as seamless as can be. Contact 3E Accounting today for a professional business experience.