One of the most important questions faced by budding entrepreneurs is the type of business entity they need to create. Proprietorship or partnership, one person company or something else? With each having its own merits and drawbacks, it is natural for most people to feel a bit confused which one to opt for.
Types of Enterprises in India
Let us take a quick look at the primary advantages and disadvantages of each company type and then see learn how to register a company in India.
- Easiest to set up and start a business but
- Opportunities to take on more work or apply for loans are limited to your own capabilities.
- All liabilities, risks and responsibilities rest with you.
- You will need at least one other person to set this up. It is better than a proprietorship as the risk is divided among the partners.
- You are still accountable for your share of the business.
- Limited Liability Partnership (LLP):
- LLP registration ensures your liability is limited to the capital you contribute.
- Company: The entity that can take you from a two-person team to a thousand-strong without any changes needed to the structure. Disclosure norms are more stringent than others but if handled as required, can make it the most hassle free set up for a business. There are three types of companies:
- One Person Company:
- Easiest company to set up
- Stringent guidelines such as informing the Registrar of Companies (RoC) of each contract you enter into.
- Private Limited Company:
- separate legal entity, distinct from its directors or management
- Needs at least two directors
- Share membership is limited to 50
- Plus, you cannot ask the public to apply for shares of the company
- Public Limited Company:
- No limit on shareholders
- You can even ask the public to subscribe
- You need at least seven directors to form a public company
- It has the most detailed disclosure and filing requirements among all enterprises
Now that we have tackled the basic pros and cons of these four types of enterprises, let us look at what we intended to do in the first place, i.e. how to register a company in India.
Step no. 1 – Digital Signature Certificate (DSC):
This is the first thing you need to acquire. The certificate is the digital equivalent of your signature on paper. You can use it to sign documents online such as tax submissions, for filing yearly accounts and for other matters where your signature is required.
The best way to get it is to approach a Certifying Authority who will provide you a form you need to fill. Once you fill in the form, you can submit the same with documents such as a photograph, self-attested ID proof and address proof, and a cheque for the charges of the Certifying Authority.
You can provide your Aadhar eKYC based authentication as a proof of your ID and address. You can also choose to offer a certificate or a letter from the bank that provides your address and other details.
It takes 1-2 days to get the Digital Signature Certificate.
Step no. 2 – Director’s Identification Number (DIN):
You need a Director’s Identification Number (DIN) to become a director of a company in India.
Each individual who wants to be a director must get himself or herself registered with the Ministry of Corporate Affairs (MCA) by filling the eForm DIR-3. You will need to provide your PAN when you fill the form. The eForm must be accompanied with photographs, ID and address proofs, including a scanned copy of your PAN. Moreover, it must be signed by you and a Company Secretary who is a member of the Institute of Company Secretaries of India (ICSI). You can sign the form with your newly acquired digital signature.
The form has to be submitted online. Once submitted, you need to pay the fee of Rs. 500/- by electronic payment. It takes 1-2 days for you to receive your Director’s Identification Number (DIN) after submitting the form.
For your information, you can chose to skip this step entirely and instead opt for the MCA’s Simplified Proforma for Incorporating Company electronically (SPICe), where you can apply for a DIN along with the application for incorporation of the company.
Step no. 3 – Approval of Name:
You will have to submit a few (3-6) names for approval to the MCA. The ministry will check if the name is available and whether it meets the naming guidelines. The overall process takes around 5-7 working days. The form used is Form 1A.
Like step 2, you can also skip this step if you opt for the SPICe format for registering your company.
Step no. 4 – Preparing Company Documents:
Two primary documents have to be drafted before you can incorporate a company. These are the Memorandum of Association (MOA) and the Articles of Association (AOA). They are often called the constitution of the company and define its character and what it can and cannot do.
Since these documents require some detailed drafting, it is always better to hire an expert to create the documents for your business. You would need to fix on certain matters before you get these documents finalised, such as:
- Name of your company
- Its registered address
- The amount of share capital and their division (shareholding)
- Primary business of the company and related businesses
Step no. 5 – Company Incorporation:
The last step in the process is to apply for a certificate of incorporation. There are three primary forms that need to be filled:
- Form 1: The application form for incorporation of a company.
- Form 18: This is the form where you provide the office address.
- Form 32: This form is used to denote the directors and the principal management of the company.
The MCA has introduced a Simplified Proforma for Incorporating Company electronically (SPICe). The SPICe – INC-32 form can be submitted electronically with electronic Memorandum of Association and Articles of Association. You can also choose to upload PDF versions of your MOA and AOA if their electronic formats are not available.
As mentioned under steps 2 and 3, SPICe can be used to apply for Director Identification number (DIN) and to reserve a company name, in addition to applying for incorporation of a company and for allotment of Tax Deduction Account Number (TAN) and Permanent Account Number (PAN).
Other Certifications / Documents:
Tax Deduction Account Number (TAN): You need to apply for the company TAN from the Income Tax Department. You can apply for it online through the NSDL TIN website or offline by filling Form 49B and submitting it at the TIN filing centre. You can also use the SPICe route to get allotment of a TAN.
Permanent Account Number (PAN): Every company needs to have its own PAN, which is used for tax related purposes. Like the TAN, you can apply for the PAN online through the UTIITSL or NSDL websites or offline at the PAN Application centre. Unlike before, you can also choose to use the Simplified Proforma for Incorporating Company electronically to file for allotment of a PAN.
Goods and Services Tax (GST) Number: The number is required for all companies and businesses that do service in India. Though recently introduced to replace the service tax and various other taxes and cesses, it is essential that a company applies for a GST number right at the outset as it will help them take advantage of the provisions of the tax.
Though the cost of registering a company in India is not high, the overall company registration process is still a bit complex for a newcomer who is not aware of the different forms and documents that need to be submitted. This can lead to spending more time and money than what is required.
Consequently, it makes more sense to hire a professional or a firm who can get the job done without you having to wade through the various forms and requirements.