Self Employed & Business
| LLP vs. Private Limite Company vs. Partnership | ||||||
| Conditions | Private Limited Company | One Person Company | Limited Liability Partnership | Partnership Firm | Proprietorship Firm | |
| 1 | Act | Companies Act, 2013 | Companies Act, 2013 | Limited Liability Partnership Act, 2008 | Indian Partnership Act, 1932 | No specified Act |
| 2 | Registration Requirement | Mandatory | Mandatory | Mandatory | Optional | No |
| Registration under Companies Act is mandatory | Registration under Companies Act is mandatory | Registration under LLP Act is mandatory | Unregistered partnerships are legal, but registered entity enjoys certain advantages | There is no registration criteria prescribed. But, registration is recommended | ||
| 4 | Number of members | 2 – 200 | Only 1 | 2 – Unlimited | 2 – 50 | Only 1 |
| Minimum 2 and not more than 200 shareholders | Only an individual,and an Indian resident can be the shareholder | No bar on maximum number of partners, but minimum 2 Designated Partners are required | It is formed with minimum 2 partners, but not exceeding 50 | Proprietor is the only owner of the firm | ||
| 5 | Separate Legal Entity | Yes | Yes | Yes | No | No |
| It is a separate entity and can own assets in its name | It is a separate entity and can own assets in its name | It is a separate entity and can own assets in its name | It does not have any separate identity from its partners | Proprietor and business are considered the same | ||
| 6 | Liability Protection | Limited | Limited | Limited | Unlimited | Unlimited |
| Limited up to the total value of shares subscribed | Limited up to the value of shares subscribed | Limited up to the capital amount agreed to introduce | Partners are jointly and severally liable to pay the debts of the Partnership Firm | Proprietor’s liability is to pay-off all the debts and obligation of the firm | ||
| 7 | Statutory Audit | Mandatory | Mandatory | Dependent | Not mandatory | Not mandatory |
| Auditor must be appointed within the 30 days of incorporation | Auditor must be appointed within the 30 days of incorporation | Applicable when turnover exceeds INR 40 Lakh or contribution exceeds INR 25 Lakh | Statutory audit not applicable. Tax audit may be applicable based on turnover | Statutory audit not applicable. Tax audit may be applicable based on turnover | ||
| 8 | Ownership Transferability | Restricted | No | Yes | No | No |
| Shares can be transferred with the consent of other Shareholders | Shares are not transferable easily | Ownership can be changed with consent of other partners | Ownership is not transferable easily, clause of partnership deed should be referred | Firm is no different from proprietor and so ownership is not transferable | ||
| 9 | Uninterrupted Existence | Yes | Yes | Yes | No | No |
| Perpetual existence as the management and owners are different. Ownership is easily transferable | Perpetual existence. The nominee will take place of member | Change in Partners or Designated Partners does not affect the existence of LLP | Change in partner leads to dissolution or formation of another partnership firm | Death or insolvency of proprietor directly affects the firm | ||
| 10 | Foreign Participation | Allowed | Not Allowed | Allowed | Not Allowed | Not Allowed |
| Foreign national are allowed to invest under the Automatic Route | Member, nominee and director must be an Indian resident | Foreign nationals are allowed, subject to FDI Guidelines | Foreign nationals are not allowed to be a partner | Foreign Nationals cannot commence proprietorship business | ||
| 11 | Tax Rates | Moderate | Moderate | High | High | Low |
| Tax rate applicable for small companies is reduced to 22%, dividend distribution tax applicable | Tax rate applicable for small companies is reduced to 22%, dividend distribution tax applicable | With tax rate of 30% on business profit, no tax on income distribution to partners | With tax rate of 30% on business profit, no tax on income distribution to partners | Tax rates of individual applied to Proprietorship Firm | ||
| 12 | Statutory Compliances | High | Moderate | Moderate | Less | Less |
| Companies have to meet high compliance requirements | Companies have to meet high compliance requirements | Lesser compliance requirements compared to companies | Separate ITR of partnership is filed, else there is no filing requirement | No compliances and no requirement to file a separate ITR | ||
If you are planning to start a business, there are many business structures from which you can choose. The organisational structure you choose will determine the taxes you have to pay, the compliance measures you need to follow and the eligibility criteria you need to meet. Hence, one of the most vital decisions an entrepreneur can make is deciding what are the types of company registration to do in India.
Different Types of Companies
As per the Companies Act of 2013, here’s a look at the different classifications and types of business entities found in India:
Sr No |
Criteria |
Types of Companies |
| 1 | Basis of size |
Micro Companies Small companies Medium companies |
| 2 | Basis of the number of members |
One person company Private companies Public companies |
| 3 | Basis of control |
Holding companies Subsidiary companies Associate companies |
| 4 | Basis of liability |
Limited by Shares or by Guarantee Unlimited |
| 5 | Basis of access to capital |
Listed companies Un-listed companies |
Types of Company Registration
Company registration is the primary process by which business owners establish or incorporate their company. Since there are several types of companies in India, entrepreneurs have to ensure they choose a business type that suits their operations. In India, the Companies Act, 2013 provides 7 different structures to set up a business:
- Private Limited Company
- Public Limited Company
- Partnerships
- Limited Liability Partnership
- One Person Company
- Sole Proprietorship
- Section 8 Company
Private Limited Company
Private limited companies are suitable for businesses that require registration as private entities. In this type of company, a group of shareholders distribute the liability amongst themselves to help protect their personal assets. The total capital of such business types is the total of all the shares held by each member of the company. Also, the personal and business assets of the members are considered separate, allowing for better protection and security. The shares of such a company cannot be publicly traded or transferred.
As per the Companies Act, to be eligible for this type of business registration, the following criteria must be met:
- Minimum of two and maximum of fifteen directors
- At least one of the directors must be an Indian resident
- Minimum of two and maximum of 200 shareholders or members
- Additionally, an authorised capital fee amounting to at least ₹1 lakh
- Must have a registered office address within India.
Types of Private Companies
- Limited by shares: In such private limited companies, the liability of the members is limited to the normal value of shares owned by them
- Limited by guarantee: In this case, the liability of members is limited by the amount the members will contribute or guarantee to pay if the company goes bankrupt.
Public Limited Company
A public limited company is one whose shares may be purchased by members of the general public. In such business entities, there is no limit on the number of shares that can be sold or traded. Since the shares of the company are listed on the stock exchange, they can be traded freely, making the shareholders part-owners of the company. Such companies need to obtain a certificate of registration from the RoC before commencing business operations.
As per the Companies Act of 2013, the following criteria must be met to register as a public limited company:
- Minimum of three directors
- At least one of the directors must be an Indian resident
- Minimum of seven shareholders with no cap on the maximum limit
- An authorised capital fee amounting to at least ₹5 lakhs
- Must have a registered office address within India.
Partnership Firm
In partnerships, the handling of operations is by partners who have agreed on the role and share in profits. The functions, duties, powers, and number of shares held are all clearly defined in a verbal contract known as the partnership deed. These businesses fall under the purview of the Indian Partnership Act of 1932.
Partnership firms can function with or without a license as long as they have a valid and registered partnership deed. However, most partnerships do register as it gives them additional rights and benefits. The eligibility criteria to form a partnership are:
- Minimum of two and maximum of fewer than ten partners
- Must have a registered office address within India
- Must have a registered partnership deed signed by all partners.
Limited Liability Partnership
Popularly called an LLP, the limited liability partnership is a new type of company in India. It enjoys a separate legal status, helping distinguish between personal and business assets, and granting the entrepreneurs limited liability protection. In LLPs, the liability of each partner depends on the number of share capital.
To set up an LLP, the following criteria must be met:
- Minimum authorised capital amounting to ₹1 lakh
- At least one of the designated partners must be an Indian resident
- Minimum of two partners and no cap on the maximum number
- At least one individual partner, if the rest are corporate bodies
- No requirement for shared capital since each partner must have an agreed contribution.
One Person Company
The newest entry into the different types of company registration allowed in India is OPC and it is great for small businesses. It is the best option for entrepreneurs who wish to run a business by themselves. The OPC has a separate legal status; entrepreneurs get the benefit of liability protection without having to partner with anyone else.
Since it involves only one individual, an OPC is easy to incorporate and regulate. It essentially serves as a combination of the sole proprietorship and private limited company model of business entities. To register as an OPC, the following criteria must be fulfilled:
- Minimum authorised capital amounting to at least ₹1 lakh
- The individual must be a natural Indian citizen and resident
- The promoter must appoint a nominee during the incorporation
- Financial businesses cannot incorporate as an OPC.
Sole Proprietorship
A sole proprietorship is where a single individual handles the running of the business. The company and the owner are considered as a single entity, making them solely responsible for profits and losses. Since the registration bears the name of the owners, tax filings and accounting reports will also bear the name of the owner, leading to unlimited business liability.
That said, it is the simplest form of business to set up and run. Home business owners prefer this as it does not require much investment or compliances.
Section 8 Company
Commonly called a non-profit organisation, Section 8 companies work for charitable purposes. The purpose is in the lines of promoting arts, science, literature, education, caring for the needy, and protecting the environment. Moreover, all the profits generated by them are used to achieve these objectives, and the members do not take dividends for themselves.
To register a Section 8 company, you must meet the following criteria:
- Minimum of two shareholders
- Minimum of two directors and they can be shareholders as well
- At least one of the directors must be an Indian resident
- No minimum capital requirement
- Must have a registered office address in India.
Registering you firm on MSME portal for eudyog adhar on below portal
Startup India Program Registration
Startup India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities. The Government through this initiative aims to empower Startups to grow through innovation and design. In order to meet the objectives of the initiative, Government of India is announcing this Action Plan that addresses all aspects of the Startup ecosystem. With this Action Plan the Government hopes to accelerate spreading of the Startup movement:
- From digital/ technology sector to a wide array of sectors including agriculture, manufacturing, social sector, healthcare, education, etc.; and
- From existing tier 1 cities to tier 2 and tier 3 citites including semi-urban and rural areas. The Action Plan is divided across the following areas:
- Simplification and Handholding
- Funding Support and Incentives
- Industry-Academia Partnership and Incubation
https://www.startupindia.gov.in/
PAN Card for your Business
https://www.onlineservices.nsdl.com/paam/endUserRegisterContact.html
GST Registration Online for your business
https://reg.gst.gov.in/registration/
Shop/ Proprietary Business Registration (Maharashtra State)
https://aaplesarkar.mahaonline.gov.in/en/Login/Certificate_Documents?ServiceId=3580