Company registration is one essential move of stepping from your dream into the reality of building a stable, credible, and booming business. Registering the company not just legally legitimizes the enterprise, it helps in safeguarding the company’s assets and in protecting against threats and losses.
Company registration is one essential move of stepping from your dream into the reality of building a stable, credible, and booming business. Registering the company not just legally legitimizes the enterprise, it helps in safeguarding the company’s assets and in protecting against threats and losses. It establishes trust among customers, aids investments, and enhances growth potential. It’s the right step in the direction of a genuine business. Before registration, however, it is important to understand and choose the appropriate structure for the company.
Private Limited Company
In order to register a Private Limited Company, it is required to have a minimum of two directors, at least one of them being an Indian citizen, as well as two shareholders. It can have a maximum of 200 members. A minimum authorized share of 1 lakh INR is also required. A private limited company is held privately by shareholders and managed by directors. It is structured legally as an independent entity and offers limited liability and protection to Shareholders. The liability of each shareholder is limited to the number of shares held by them and the shares are not to be traded publicly. In case the company goes into loss or bankruptcy, the loss affects only the assets of the company and will never put the personal assets of the shareholders at risk. As the structure of private limited companies minimizes individual risk and obligation, it is extensively investor-friendly. It provides greater options for raising funds through investments from venture capitalists and angel investors.
Acquiring loans from banks is also a very viable option for a reliable and credible business as a private limited company. The reputable status of a legally recognized company makes it favored among corporate customers, vendors, and government agencies. The existence of the company continues irrespective of death, bankruptcy, or change in ownership of any of its members, which means that the company has perpetual succession. This also means exiting from a company is relatively easy. Selling of the company involves very less hassle in terms of cost and documentation.
Public Limited Company
It is also a limited liability company that exists as an independent legal entity and has perpetual succession, but unlike a private limited company, the shares of stock are transferable and are traded to the general public. Anybody can acquire the stocks through an Initial Public Offering or through stock market trade. Its eligibility for business activity requires obtaining the trading certificate along with the certificate of incorporation. A minimum of 7 members and 3 directors are required for registering a public company and there is no upper limit on the number of members allowed. The company is managed by a board of directors consisting of a maximum of 15 representatives of shareholders elected in their annual general meeting. Since anyone can invest in the company, the capital is enhanced easily and the risk is spread out wide leading the public companies to have good growth potential as there are more opportunities for expansion.
Limited Liability Partnership (LLP)
Limited Liability Partnership (LLP) blends the features of a partnership firm and a company to form a business organization which, again, offers limited liability to the partners and is an independent legal entity. Registering an LLP requires two designated partners with at least one as an Indian resident. An LLP structure ensures the survival of the firm in the event of death, retirement, or insolvency of a partner. Incorporating an LLP is fairly easier and cheaper than registering a company, as the minimum fee is Rs. 500 and the maximum amount is Rs. 5600. There are also no restrictions on the joining or leaving of an LLP. So, it is easy to bring in new partners and it is easier to transfer the ownership to others. The board of director is responsible for all the management activities and decisions and have more power, compared to the shareholders. From a taxation point of view, the LLP structure is quite advantageous as an LLP has a lower rate of tax than a company. LLPs are also exempted from dividend distribution tax and minimum alternative tax. LLPs have low compliance costs and have no mandatory audit, except for when the turnover exceeds Rs. 40 lakhs and where the contribution exceeds Rs. 25 lakhs.
Nidhi Limited Company
A Nidhi company is a distinct type of non-banking finance company (NBFC) that is recognized under section 406 of the Companies Act 2013. Nidhi companies are Permanent Fund, Benefit Funds, and Mutual Benefit Fund Companies that are regulated by the Ministry of Corporate Affairs compliant to the Nidhi Rules 2014. The core business of these companies is the lending and borrowing of funds between its members. The basic principle of a Nidhi company is to encourage the “principle of mutuality” encouraging the flow of savings funds among its members to the benefit of the collective. A number of at least seven members are required to start a Nidhi company, out of which three members must serve as directors. It also requires a minimum equity share capital of Rs. 5 lakhs. The company should ensure that it has not less than 200 members within a year of its commencement of operations. The company should also comply with the Companies Act 2013. The registration process is quite simple, compared to the other types of NBFCs as there is no need to register with the RBI and obtain its approval and license.