A Detailed Comparison Between 7 Types of Companies in India

There are many benefits of starting a business in India. In addition, the registration process is relatively simple and can be done without being physically in India. In this article, our team at Tetra Consultants has highlighted 7 types of companies in India once you decided to register company in India.

Partnerships:

• Partnership consists of at least two partners where each partner has unlimited liability and profits will be shared between them.
• Although formal registration is not required, it is recommended to fill up a partnership deed. The agreement will include all information such as the invested capital, profit sharing and terms of business operation and structure.
• Compared to a sole proprietorship, the partnership allows for easier fundraising as it is deemed more reliable to financial institutions. Furthermore, a shared responsibility among the partner allows for better accountability.

Limited Liability Partnerships:

• The Limited Liability Partnership is suitable for small and medium enterprises.
• Under the Limited Liability Partnership Act 2009, Limited Liability Partnership consists of at least two partners where they are not exposed to unlimited liability.
• Since it is a separate legal entity, the liability is only limited to the shared capital contributed.
• There is no minimum capital required.
• It has a lower registration cost compared to a private limited company or a public limited company.
• It is subjected to lesser obligations compared to private limited companies where only the filing of annual return statements and statements of account is required.

Private Limited Companies:

• Under the Companies Act 2013, a Private Limited Companies is made up of at least 2 members to a limit of 200 members. Since it is private, it is not allowed to issue shares on the stock exchange. The shares cannot be transferred from one member to another freely.
• It is a separate legal entity where the shareholder is not liable for debts, losses or legal action was taken against the business.
• It is easier for a private limited company to borrow from banks and financial institutions as compared to others such as partnerships and limited liability partnerships.
• Since it is a separate legal entity, the shareholders are not able to claim ownership of the company. Furthermore, business operations will not be disrupted even in the case of resignation or death of a shareholder.

Public Limited Companies:

• Under the Companies Act 2013, a Private Limited Companies is made up of at least seven shareholders with a minimum paid-up capital.
• It is a separate legal entity where the shareholder is not liable for debts, losses or legal action was taken against the business.
• Since it is a public company, it is listed on the stock exchange is traded openly. Hence, it is subjected to more legal regulations and public disclosure. However, it is able to raise capital easily through the stock market.

One-Person Companies:

• According to the companies act 2013, a one-person company can be formed with one person with limited liability. This is to mitigate the risk of unlimited liability of a sole proprietorship while encouraging entrepreneurship.
• The shares can be owned by a single person. However, there must be an additional nominee director.
• This is only available to a resident of India and does not apply to foreigners.
• This is attractive as owners can take a higher risk without worrying the unlimited liability. In addition, under the Micro, Small and Medium Enterprises Development Act 2006, if there is any delay in the receiving of payment, they are entitled to three times the interest rate in the payment.

Section 8 Company:

• Section 8 companies are for non profit company registration in india.
• Since it is a separate legal entity, shareholders are not liable for any debts and obligations of the company. With section 8 company registration, the Non Profit Organisation (NPO) will have higher credibility compared to trust or society. This is due to the recognition of the central government of India which boosts its reliability and reputation.
• The objective of an NPO is primarily to promote arts, commerce and various forms of social welfare in the form of education, charity, religion and protection of the environment, to name a few. Any profits, if generated, here are used in achieving its aforesaid objective. The dividends are also not paid to its members.
• It requires a minimum of two directors as a private limited company and a minimum of three directors in the case of a public limited company. For both cases, at least one direction would have to be a resident of India. The maximum number of members is 200 for a private limited company, whilst there is no limit for a public limited company.
• It is able to enjoy several tax exemptions.
• There are no minimum capital and stamp duties required.

Sole Proprietorship:

• A sole proprietorship is the simplest form of business structure where the business is owned by a single person. Tax reporting is also simple as it is exempted from corporate tax. However, personal income taxes still apply.
• There is no formal registration for a sole proprietorship.
• Since it is not a separate legal entity, there is unlimited liability where the owner will be liable for all debts, losses or legal action was taken against the business. Moreover, it can be more difficult to raise capital via debt or equity.
• Filing for corporate tax returns is not required; however sole proprietors are required to report personal income tax returns instead.
• A sole proprietorship is suitable for small businesses due to its cost-effectiveness, flexibility in decision making. Since it does not require formal registration like other business entities, it is not required to bear the fees of the application. In addition, the owner is in full control of business decisions and nosiness structure. Hence, it gives the owner full flexibility in the decision-making of the business.

Conclusion:

There are many different types of companies in India. If you are unsure which of the types of companies in India is suitable for you, you may want to engage the service of Tetra Consultants. With Tetra Consultants by your side, the registration process of your business in India will be smooth and hassle-free. Our comprehensive service package includes planning and strategizing with our clients to select a suitable business entity, completing the registration process, obtaining required licenses, opening a corporate bank account, and ensuring your compliance with the government regulations. 

Contact us to find out more if you would like to register new company in india and our dedicated and experienced team will revert within the next 24 hours.