The term ‘incorporation of a company’ is a reference made to the legal process involved in the creation of a corporate entity or company. There are a variety of different company structures, such as:
Private limited company: this is the most popular type of company in India, with a structure that allows a clear separation between the owners and the company, allowing the owners to be free of any debts the company might get into, as long they are not directly responsible for the incurring of such debt. In India, Vakilsearch are the countrywide leaders in company registration online, with the unbelievable record of being involved in the incorporation of a new company every 9 minutes.
Partnership firm: this is the easiest type of entity to create, with just a stamp paper and stamp duty being needed. However, partnership companies offer notoriously poor protection for the partners involved in the venture, with partners being individually liable for the debts of the company. The tradeoff for the ease of incorporation is the lack of sufficient separation between the partners and the company.
Limited liability partnership: if opting for a partnership type of structure, limited liability partnerships, better known as an LLP, offer all the protection and identity separation of a private limited company within the structure of a partnership company, thus giving its members the benefits of both structures and the best of both worlds.
One-person company: a one-person company, also known as an OPC, can be formed with only one owner who acts as both director and sole shareholder of a company. An OPC is allowed to have more than one director, but there cannot be more than one shareholder. In an OPC, the sole owner has complete command over the company, thereby restricting their liability towards their contributions to the enterprise.
Nidhi company: a Nidhi company is formally classified as a non-banking financing company (NBFC) and is registered under Section 406 of Companies Act of 2013. Nidhi companies are primarily incorporated in order to allow the borrowing and lending of money between the various members of the company. In this manner, members/shareholders are encouraged to save money and invest all of it within the company. Following that, the deposits are utilised by the company to aid its members/shareholders by providing them with loans or advances and is also used to acquire government-issued stocks, bonds, debentures and securities.
Producer company: the concept of the producer company was introduced in India with the Companies Act of 2013. It allows people engaged in activities that are related to producing, generally what has been grown or produced, like farming, in particular, the opportunity to form a company. A producer company needs to be formed by 10 or more producers, two or more producer institutions, or even a combination of 10 or more producers and producer institutions. A producer company is only allowed to have equity capital and needs a minimum of five directors and an authorised capital of Rs. 5 lakhs. The requirements for forming a producer company are very similar in nature to those for forming a private limited company.
Sole proprietorship company: a business that is owned and governed by one person is called a sole proprietorship company. The biggest advantage with a sole proprietorship company is that it can be incorporated in a mere fifteen days, and that makes it one of the most popular types of businesses one could start in the unsystematic sector, specifically among merchants and small traders. Registration of a sole proprietorship company is not required as it is identified through alternate registrations such as GST and the like. However, it does bear unlimited liability and can only exist for as long as its owner is alive or for as long as they wish to do business.
Essentially, once you come up with a business idea, start asking yourself the following questions:
- What problem does your product or service aim to address?
- Who is your target audience?
- Will it be a side project or a full-grown business?
- Who are your competitors?
- Does your business require brick & mortar premises or will it be online?
- Is there international scope for it?
You will be best equipped to decide upon the type of structure with which you would be best served to incorporate your business one you ask and answer these questions.
When you have decided on the structure you will need to enroll in the business. The registration process may differ based on the type of entity and structure you decide to use. When in doubt about what would suit you best, Vakilsearch is the best-positioned company in India to guide you on this journey and advise you on what would suit your business’s needs best.
Commute Vakilsearch website to know more about private limited company registration.