This Artice is regarding the various forms of companies that can be formed in India. A person can register a company as a private limited company, public limited company, one person company, Sole Proprietorship or limited liability partnership in India.
To gain a valid legal status every company is required to obtain a registration with MCA in India. In India, there are various forms of companies like the private limited company, public limited company, one person company and limited liability partnership that can be formed. While choosing the form of company to be formed one must consider the certain factors like liability, nature of the business, number of owners, future plans and tenure of business etc.
The various Business entity options available in India are –
1. Sole Proprietorship - It is the oldest and the simplest form of business entity. This type of company is owned and managed by the individual making him the sole authority to take all kind of decisions regarding the operations of the organization. Further, the taxation and accounting procedure in this form of company is much easier than other forms of companies. As a sole proprietor is not required to file a separate business tax return and all income generated from the business is reported on the personal tax form.
2. Partnership Firm - In case two or more than two persons desire to come together and carry out a business then they can do so by forming a partnership firm. One of the advantages of partnership firm over sole proprietorship firm is the increase in the amount of capital investment. Further, more than one owner helps to increase the skills and improves the decision-making process. In addition to this, the risk of losses will be shared by all the members in this type of company.
3. Limited Liability Partnership - This type of company was introduced in India through the Limited Liability Partnership Act 2008. One of the biggest advantages over the traditional form of partnership is the presence of limited liability. The LLP formed is considered to be a separate legal entity from its members which makes the liability of the members limited to their share. Moreover, the incorporation process and the compliance process is simpler this form of company.
4. One Person Company - The concept of One Person Company (OPC) was recently introduced to overcome the disadvantages of the sole proprietorship. Just like sole proprietor company, one person company is also owned and managed by the single owner, giving him a full control over the company. However, unlike the sole proprietorship business entity, the liability of the owner is limited to his/her contributions to the business. Further, as the company formed is a separate legal entity from its members, the life of the company does not come to an end with the death of partners.
5. Private limited Company - This type of company is basically suitable for medium and large-scale business enterprises. It is a form of privately held business with minimum 2 and maximum 50 members. Further, the liability of the members of this company is limited to their share. In addition to this, the disclosure requirements in case of private limited are less.
6. Public Limited Company - This type of company can be formed with at least 3 directors and 7 shareholders and a minimum paid up capital of Rs 5,00,000. One of the major benefits of the public limited company is that it can offer its share to the public at large and raise funds. Further, it gives better expansion opportunities to business entities as compared to private limited companies.