The Basic On How To Form A Company

Majority of business owners are not legal experts. They are engineers, marketers, coders, or professional in any other field. It signifies that they are rarely aware of the legal work that goes behind forming and registering a company in India. Since it is vital to be on the right side of the law, always, this article talks about how to register a company in India and the various options available to an entrepreneur.

• Registering a company in India, the necessary steps:

The present government has made it very simple to set up a business in India. It requires only four fundamental steps:

1. a)   Apply and get a Digital Signature Certificate (DSC).
2. b)  Apply and get a Director Identification Number (DIN).
3. c)   Register the business on the MCA Portal as a new user.
4. d)  Get the Certificate of Incorporation.

• Choosing the right business structure for company registration:

Registering a company in India is not very hard. The process is rather straightforward. It is selecting the correct business structure that is crucial. Right now, there are six main categories of company registration in the country. They are:

1. a)   One-person company (OPC)
2. b)  Hindu Undivided Family
3. c)   Sole proprietorship
4. d)  Limited Liability Partnership
5. e)   Private limited company
6. f)    Public Limited Company

Each type has its pros and cons. So, how does an entrepreneur pick the correct choice? To make the decision, a few questions should be asked prior to registration.

1. a)   What is the number of business owners?

If the business is set up by two or more people who seek investment from other parties, then a Private Limited Firm or Limited Liability Partnership is fitting. On the other hand, if one individual invested the total initial capital, then an OPC is best.

1. b)  What is the initial investment in the business?

This is a core factor in deciding the kind of business to be registered. For a business person who doesn’t want to spend a lot in the starting days, the best option would be a HUF, Partnership, or Sole Proprietorship. For those who believe that initial investment will be recovered quickly, the choices can be Private Limited Company, OPC or LLP.

1. c)   How much liability can you bear?

Some companies have unlimited liability, which means if there is loan default, then the cost will be recovered from the partners (or members) of the business. This is done according to the profit-sharing ratio. Such companies are HUF, sole proprietor, partnership, and they have a high risk connected to personal assets. Vice versa, companies such as LLP in India, have very low liability clause, which means they repay only that amount which they contributed at the start. This can also be calculated as per the value of shares each member of the company hold.

1. d)  What are the income tax rates connected to each business?

Another element that can help decide the type of company to register is the tax rate. In the case of partnership and companies, the tax applicable is flat 30%. In the case of a sole proprietorship, the income of the individual is joint with the income of the individual and taxed at the typical slab rates. In the case of HUF, the standard slab rates are applied.

1. e)   Is there a plan to rope in investors?

The final factor to ponder over while deciding which type of company to register in India is the investment plan. Not every kind of company comes with a trust value, which means getting investment for them can be hard. For instance, LLP and Private limited firms are the most trusted. Therefore, the easiest to find investors. An unregistered firm will have a tough time finding any investor.

Starting a business or registering a company in India doesn’t require strict rules or jumping of many hopes. It is the process that comes before it that is slightly rough – getting the documents in order, deciding the business structure and finding investors. But even these elements can be handled with ease as long as you have professional and experts in the field to guide you along the way.