Business Incorporation in India

India is one of the fastest-growing economies in the world, and as a result, it has become a hub for diverse businesses, from small-scale firms to large-scale corporations. Of late it has been observed that there has been a surge in the number of companies and firms that are being incorporated in the country not only in Tier I cities but also in Tier II or Tier III towns.  

With so many opportunities available, it's no wonder that many entrepreneurs are keen to establish their businesses in India. However, before starting any business, it is important to understand the various types of business entities in India and the procedure to incorporate a company.

In this article, we will discuss the various types of business entities in India and the procedure to incorporate a company.

Types of Business Entities in India

Private Limited Company

A Private Limited Company is the most common type of company in India. It is a privately held business entity that has limited liability for its shareholders. The minimum number of shareholders required to start a Private Limited Company is two, and the maximum number is two hundred. The shareholders of the company cannot sell their shares to the general public.

Public Limited Company

A Public Limited Company is a type of company in which the shares are publicly traded on a stock exchange. The minimum number of shareholders required to start a Public Limited Company is seven, and there is no limit to the maximum number of shareholders.

One Person Company (OPC)

An OPC is a new concept introduced in the Companies Act, 2013. It is a type of company in which there is only one shareholder. The shareholder has limited liability, and the company is treated as a separate legal entity.

Limited Liability Partnership (LLP)

An LLP is a type of partnership in which each partner has limited liability. It combines the benefits of a partnership and a limited liability company. The minimum number of partners required to start an LLP is two, and there is no limit to the maximum number of partners.

Partnership

A partnership is a business entity formed by two or more individuals who share the profits and losses of the business. The partners generally have unlimited liability.

Sole Proprietorship

A Sole Proprietorship is a type of business in which there is only one owner. The owner has unlimited liability, and the business is not treated as a separate legal entity.

Procedure to Incorporate a Company

The procedure to incorporate a company in India is as follows:

1. Name Reservation 

The first step is to apply with Ministry of Corporate Affairs for reservation of company name. The name should be unique and not similar to any existing company name or trademark or service mark. The clear guidelines for selection of name have been prescribed in the rules framed under the Companies Act, 2013.  The guidelines should be strictly followed to select and apply for name reservation to avoid any hassles.

2. Get Digital Signature Certificates (DSC) 

The next step is to obtain DSC for at least two (2) proposed directors of the company. You need to apply for and obtain DSC from authorized Government agencies, especially appointed for issue of DSC. All filings to be done with Ministry of Corporate Affairs/ Registrar of Companies are made under DSC.

3. Apply for Director Identification Number (DIN)

Next, it is mandatory to apply for and obtain DIN from Ministry of Corporate Affairs for each proposed director of the company. As per recent amendments in company rules, DIN is issued at the time of filing incorporation documents including Memorandum of Association (MOA) and Articles of Association (AOA).

4. Incorporation Documents: 

The next step is to prepare and file the incorporation documents, including MOA and AOA.

5. Payment of Fees 

The next step is to pay the fees for incorporation.

6. Certificate of Incorporation: 

Once the Registrar of Companies approves the application for incorporation, a Certificate of Incorporation is issued.

7. PAN and TAN:

The next step is to obtain Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN). Nowadays, PAN and TAN of the company are issued along with Certificate of Incorporation.

8. Open a Bank Account: 

The final step is to open a bank account in the name of the company. As per ease of doing business initiative taken by Government of India, a company's bank account is also opened simultaneously with incorporation of a company.

In conclusion, incorporating a company in India can be a complex process, but with the right guidance and assistance, it can be done easily. Understanding the different types of companies in India and the procedure to incorporate a company is essential for anyone who wants to start a business in India.

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Disclaimer: The views expressed in this article are personal views of the author, intended solely to provide general information and should not be taken as professional advice or substitute of professional advice. Before acting on the information given herein, please consult a qualified expert or professional for advice on specific issues.