The foremost thing to deal with while starting your own business is fulfilling the legalities to ensure the smooth running of your business entity. Company registration is the first step in the process that grants you a legal authorization to conduct business. It involves abiding by a set of rules and regulations prescribed under the Companies Act.
Company registration is a primary process that all business owners need to accomplish. The Companies Act 2013 lists different types of companies that can be incorporated in India.
So before you move ahead with the company registration process, take a look at these different types of companies you can register in India.
1) Private Limited Company
A Private Limited Company is a private entity meant for small businesses. As per the provisions of the Companies Act 2013, there can be a minimum of 2 members and a maximum of 200 members in a company. In this form of company, there are a group of shareholders and the total capital is made up of shares withheld by each member.
In a Private Limited Company, the liability of members is limited to the number of shares held by them. Business assets and personal assets are treated separately. Shares of a Private Limited Company can be sold or transferred to individuals, who in turn become owners of the company. The shares, however, cannot be publically traded. A Private Limited Company can be further classified as
a) Company Limited By Shares
This is the most generic form of a Private Limited Company. Here the liability of members is limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
b) Company Limited By Guarantee
In this type of Private Limited Company, the liability of the members is limited by the memorandum to such amount, which the members may respectively contribute to the assets of the company, in the event of it’s going bankrupt.
c) Unlimited Company
In this form of company, there is no limit on the liability of the members. This implies that in an event of a loss if the company assets fall short to pay off the creditors, the private asset of its members are then consumed to clear debts. The risk factor is extremely high here.
Supporting article: 6 quick steps to set up a Private Limited Company in India
2) Public Limited Company
A Public Limited Company shares can be purchased by the general public. The company must have 3 directors and a minimum of 7 shareholders. In a Public Limited Company, there is no limit on the number of shares.
The shares are listed on the stock exchange and can be traded freely. Such companies are owned by their shareholders. Companies under this category require a certificate from the Registrar of Companies (ROC) before starting their business operations.
This is one of the different types of companies where business transactions and operations are handled by partners. The responsibilities, roles and the number of shares withheld by the two individuals are clearly defined in the legal partnership agreement.
The profits or loss incurred by the business is divided among the partners as stated in the agreement.
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4) One Person Company
One Person Company (OPC) is the latest entrant in the different types of companies registered in India. It was introduced under the Companies Act 2013, in favour of entrepreneurs who possess the capability to run a business singlehandedly, yet successfully. The minimum paid-up capital of shares in an OPC is INR 1 Lakh.
This new addition to the different types of companies in India was a pleasant change as it allowed a single person to take charge of the company affairs while other types of companies required a minimum of two individuals to function as members in any company.
It is highly beneficial for owners of small businesses who do not need partners. Much in a similar way, OPC is regarded as a distinct legal entity from its members. The shareholders here have limited liability protection and this form of company is quite easy to incorporate.
Supporting article: A comprehensive guide to register a One Person Company
5) Sole Proprietorship
Sole Proprietorship is a type of company wherein a single person manages the entire business operation. The business and the owner are treated as one identity and he/she solely bears the profit or loss made thereafter.
The company in Proprietorship is registered in the name of a single individual only. All accounting is done under the owner’s account for taxation purposes. Proprietors here have to bear unlimited business liability.
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6) Limited Liability Partnership
In a Limited Liability Structured Company (LLP) requires a minimum of two partners. It is also a newly introduced corporate business structure that conjoins two terms ‘company’ and ‘Partnership Firm’. An LLP is a separate legal entity from the partnership and personal and business assets are distinguished.
The liability of the partners is determined by the number of their share capital. When compared to Sole Proprietorship and Partnership, an LLP shows better credibility among its investors. This is attributed to appropriate maintenance of incorporation records, financial records and tax records.
7) Section 8 Company
This type of company is registered as a Non-Profit Organization (NPO). The objective of an NPO is primarily to promote arts, commerce and various forms of social welfare in the form of education, charity, religion and protection of the environment, to name few. Any profits, if generated, here are used in achieving its aforesaid objective. The dividends are also not paid to its members.
In India, no business can be treated as a company if it is not registered with the registrar of companies under the Companies Act 2013. It is only after registration that a company becomes a separate legal entity from its members.
Company registration is, therefore, an important and crucial step in realising your dream of becoming a successful entrepreneur. Use the information here and get started!
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