I always knew that starting a business is no joke. There are a thousand things to worry about when starting up any kind of small business. But, one of the most important things to consider while starting a new company is to get your business legally registered or else you’ll be inviting unimaginable troubles from the government.
Hence, this article intends to make you aware of all the legal requirements to start a small business in India and help you choose the type of business you should be registering as.
Not all types of businesses attract the same laws. The Indian Companies Act, 2013 states different pre & post company registration laws for each type of business.
1. Business Laws for registering a “Sole Proprietorship Business”.
Many Indian small businesses in the unorganized sectors utilize this. If you want to own, manage and control business all by yourself, you can opt for a sole proprietorship. This is one of the least expensive and easiest type of business to start and operate.
So, want to register a company name as a proprietor? Here is a list of Govt laws you should know of when operating business as a “Proprietor” in India.
✔ You have control over every aspect of the business, from the company’s finances to marketing decisions.
✔ You need no consent from partners or board members to make important business-making decisions. This lets you react quickly to market trends and other business conditions.
✔ You are not required to file formation documents with the state or local government to begin the company. With this, you can avoid filing fees that are imposed on corporations and limited liability companies.
✔ You may hire staff to help you handle the company’s day-to-day affairs
2. Business laws for registering a “Private Limited Company”.
Want to register a company name under “Pvt ltd”? Here’s the list of Govt laws you should know when registering as a “Private Limited Company” in India.
✔ A minimum of 2 people and a maximum of 200 people are required to start a private limited company.
✔ If the company faces loss, then you are liable to sell your assets for payment. But your personal, individual assets are not at risk.
✔ A private limited company exists forever. Even in the case of death, insolvency, the bankruptcy of any of its owners, the company does not shut down.
✔ This business requires you to keep an index of its members.
✔ A Private Limited Company needs 2 directors to operate the business.
✔ You must have a minimum paid-up capital of Rs 1 lakh or such higher amount which may be prescribed from time to time.
✔ Your company is not answerable to the public. Unlike a public company, you don’t have to provide a detailed statement of the company affairs to the public.
✔ You must include “private limited” after your company name.
✔ You must provide the permanent address of your registered office. This will be the place where the company’s main affairs are being conducted and where all the documents are placed.
✔ You must obtain a digital signature certificate for your business. This should be marked on all the documents by every director of the company.
✔ You need to take support from professionals such as company secretary, chartered accountant, cost accountant, etc for certification at the time of company incorporation.
3. Business Laws for registering a “Partnership Business”.
When you decide to share the profits of a business with another one or more people, you can opt for “Partnership Business”. Want to register a company name under “Partnership”? Here is a list of Govt laws you should know of when operating as a “Partnership Business” in India.
✔ You need not register your partnership firm in India unless you’re in Maharashtra state. Registering a partnership firm is not compulsory under the Indian Partnership Act, 1932 but only Maharashtra has made its registration compulsory.
✔ Further, you can register your partnership firm at any point in time i.e. even several years after formation.
✔ You must consent all your partners for fundamental matters (like an admission of new partners, dissolution of the firm, conversion of the firm, etc.) and a majority in other matters.
✔ You must share details on profits or losses made in the business.
✔ All your partners must agree on a “business name” and then establish a partnership deed that states the respective rights and obligations of the partners.
✔ The partnership deed should be written and not oral.
✔ You can decide the terms of the Partnership Deed on your own.
✔ Terms in the deed can even be made contrary to the Indian Partnership Act, 1932 but if the Partnership Deed is silent on any point, then the provisions of the Act would apply.
4. Business Laws for registering a “Limited Liability Partnership (LLP)”.
Want to register a company name under “LLP”? Here is a list of registration laws you should know when operating business as a “Limited Liability Partnership” in India.
✔ The partners of the LLP are not liable to pay the debts of the company from their personal assets.
✔ No partner is responsible for any other partner misbehaves or misconduct.
✔ Only the directors of the company can make decisions. Shareholders have very little power as compared to them.
✔ The life of the Limited Liability Partnership is not affected by death, retirement or insolvency of the partner.
✔ Joining/leaving the company has no restrictions. You can easily transfer the ownership to others.
✔ The rate of tax on Limited Liability Partnership is less than as compared to the company.
✔ Also, you will be exempted from various taxes such as “dividend distribution tax” and “minimum alternative tax”.
✔ The audit is not mandatory unless your turnover exceeds Rs 40 lakhs and where the contribution exceeds Rs. 25 lakhs.
5. Business Laws for registering a “One Person Company”.
One Person Company (OPC), is a company with only one member who acts as a shareholder as well as a director.
Want to register a company name under “One Person Company”? Here is a list of registration laws you should know of when operating business as a “One Person Company” in India.
✔ One person company can have only one member i.e YOU. Only an individual can become a member, not any other firm/ LLP/company.
✔ You should be of Indian nationality and resident of India.
✔ You need to choose a nominee who will become the next owner of your business in the case of your death/incapacity to contract.
✔ Even the nominee should be of Indian nationality.
✔ You must appoint at least one Director.
✔ The proposed Director(s) must have a Director Identification Number (DIN) issued by the Ministry of Corporate Affairs (MCA).
✔ The name of an OPC consists of 3 parts: The Name, Activity, Private Limited (OPC).
✔ The proposed name shall end with the words ‘Private Limited (OPC)’.
✔ Your company name should be approved by the Registrar of Companies. The name of your business should signify the main, prerequisite objectives.
✔ At the time of registration, you must provide a temporary address. This address could be of any of the Directors.
✔ After registration, the company has to file the permanent business address with address proof, ownership, etc.
✔ Your company objectives should be legal and should not harm the society.
✔ You need to file all documents online with the Registrar of Companies.
✔ You must obtain a digital signature certificate for your business. All the important documents should be authenticated by using a Digital Signature Certificate of the Director.
✔ You need Chartered Account (CA), Company Secretary (CS), Cost Accountant to make necessary Certifications and declarations for the incorporation of a One Person Company (OPC).
✔ In case, your company’s annual turnover crosses Rs. 2 Crores then it has to be converted into a Private Limited Company.
6. Business Laws for registering a “Section 8 Company”.
A Section 8 Company is a Non-Profit Organization (NPO). It’s objective is to promote arts, commerce, charity, education, protection of the environment, science, social welfare, sports, research, religion. To start such a company, you need to register with the “Ministry of Corporate Affairs (MCA)”,
Want to register a company name under “Section 8”? Here is a list of registration laws you should know when you’re operating company as a “Section 8 Company” in India.
✔ You should not aim at making profits.
✔ Your objectives should be purely charitable in nature.
✔ You should further cause like science, culture, research, sports, religion, etc.
✔ To start a “Section 8 company” you need not require a prescribed minimum paid-up share capital.
✔ You and other members will have only limited liability. Your liabilities cannot be unlimited in any case.
✔ You can function only if you have the Central Government’s license.
✔ Due to your charitable objectives, you get several tax benefits and exemptions from the Govt.
✔ Apart from individuals and associations of persons, Section 8 also allows firms to be members of these companies.
✔ You need to include the words “Limited” or “Private Limited” in your company names, as all other companies have to.
✔ You cannot alter memorandum or articles of association without the Central Government’s permission.
✔ You cannot do anything that the license disallows.
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