The Business Structure is What Your Company is Made of
For reasons only known to you, India is now a choice for you to expand into the Asian market. As a business owner, you would want to start on the right path. Therefore, to conduct business legally, you now have to choose from the many company types in India. Worry not, we have a general guide for you to decide which business structure fits you and your entity.
Business Environment Reforms
India has gone through massive economic reforms to encourage a business-friendly environment. In addition to that, it now has several company types to make it easier for residents to form a legal business entity. Much of these reforms is also to attract foreign investors to its shores. It ranges from effortless company registration to a comprehensive tax system to resolving insolvency and bankruptcy. India even recently announced that it lowered the base corporate tax and a reduced rate for manufacturing companies. All these reforms, though may take some time to implement, are focused towards helping the growth of businesses and India’s overall economy.
The Legal Structures
In search of the right company structure, you will come across similar structures but varying benefits. From the company types in India, it is best to do thorough research on which company structure fits your business needs. The following is a general guideline of these company structures.
Private Limited Company
It is suitable for small companies, and the setup requires a minimum of two members. Each member is liable to the number of shares they have in the company. The shares are transferable to any individual, but not traded publicly. There is a company limited by shares, a company limited by guarantee and unlimited company. Members of unlimited companies have unlimited liability on them.
Public Limited Company
It is a company with shares traded publicly. The public can buy these shares thus owned by the shareholders. The setup requires three directors and a minimum of seven shareholders. The structure of this company type can be time-consuming and complicated.
Partnerships are companies formed by partners. Everything that has to do with the company; from the business transaction, roles and number of shares to profit or loss is defined in the partnership agreement. Hence, partners in a partnership company type must have an excellent mutual understanding to ensure smooth operations and sustainability.
Similar to a partnership, a joint venture is a partnership between a foreign and Indian investor. Both parties jointly manage the company and all risks involved. In some industries, a joint-venture company may need government approval before beginning business operations.
Limited Liability Partnership
It is probably among the best company types in India as it is a combination of a partnership and limited company. Partners liability are decided based on their share in the company. In the event of company wind-up, the company will discharge all company assets. Personal assets will be safe from such discharge. An LLP is a legal entity on its own and can sue or be sued.
A company this type is the easiest to form as a single individual owns it. There is only one person that decides everything. Their assets are also the company assets; hence, this structure is somewhat risky—the company files as an individual tax.
One Person Company
It is the latest effort by the government to encourage small, individual business owners to form an organised business entity. The business name must include OPC to distinguish them from other businesses. Such company type separates business assets and personal assets. The company files corporate tax and must convert into a private limited company, once their turnover reaches the threshold.
If you are into social responsibilities, this company type is the one for you. For members that form this company, they should know that they receive no dividends. As the name implies, such organisations are allowed to promote arts, sports, environment protection and many more. Even if there are any revenue generated, it is utilised for the activities.