Setting up a New Business in India

General Partnership

This is a business structure in which two or more than than two people handle the business operations following the objectives and terms stated in the Partnership deed. This structure has become a less viable option for people after the introduction of limited liability partnerships where partners are not liable to pay from their personal assets. However, easy and optional registration, low-cost setup, and minimum compliance makes it a good choice for several small scale businesses.

Key features

1. Unlimited Liability

The partners in the business are liable to pay off all the debts of the firm if it fails to do so. Also, if the partners choose to opt for registering the firm, the process may be very costly. Therefore, if you don’t have a comparatively small business then choosing a general partnership structure is not a good ideas.

2. Easy to Start

If you do not wish to register your firm then your business can start just after your partnership deed is ready. However, if you wish to register the firm then also the time taken will be less in comparison to the LLP registration process.

3. Relatively Inexpensive

Since there are not many minimum compliances associated with General partnership, it is easy to start. The registration process is also very basic and not so lengthy, as in the case of an LLP.

Limited Liability Partnership

This is an improvement in the general partnership because the partners have limited liability and offer each of the partner protection from misdeeds. negligence, or incompetence of the other partners. It is also considered as a relatively cheaper approach to incorporate features of a Private Limited Company.

Key features

1. Startup cost

Starting an LLP is comparatively cheaper than setting up a private limited company because there no compliance costs or paid-up capital associated with it.

2. Suited to non-scalable businesses

If your business does not require an equity funding then LLP is the most suited option because it incorporates features of both Private limited company and general partnership.

3. Tax Advantages

The tax surcharge applicable to companies with profits above 1 crore does not apply to LLPs. Also, the loans given to partners are not taxable.

4. Number of Partners

No limit is defined on the number of partners in an LLP.

One-Person Company

This is a newly introduced business structure that gives the single business owners entire control over the operations of his/her company and limits his/her liability towards the business. There is no scope of raising an equity capital since the owner of the company is also the director and the only shareholder.

Key features

1. Suited to Solo Entrepreneurs

It is made to suit the limited liability requirement of a sole-proprietor. However, after exceeding a certain turnover or profit amount, the OPC needs to get converted into a Private Limited Company.

2. Compliance Requirements are Higher

The owner will have to comply with various requirements of the MCA like conducting a statutory audit, submitting annual and IT returns because there are no such AGMS of an OPC.

3. Tax Advantages

There are some industry-specific benefits that an OPC enjoys, just like a Private Limited Company. However, taxes are payable at a flat rate of 30% on profits, MAT applies, as does DDT. But, if you are looking for a business structure with a maximum tax benefit, then LLP is a better option.

4. Number of Partners

No limit is defined on the number of partners in an LLP.

Private Limited Company

This type of business structure is increasingly preferred by startups because it allows outside funding’s to be raised easily, limits shareholder’s liability and gives them permission of offering ESOP for attracting top talents in the organization. Since private limited companies are required to hold board meetings and file an annual return to the MCA, they are seen as more credible organizations as compared to any other mentioned-above.

Key features

• Limited Liability
• High Start-up Cost
• Greater Compliance
• Fewer Tax Advantages

Public Limited Company

A public limited company has the capacity to offer shares directly to the general public and can also accept foreign direct investments.

For setting up this kind of entity, there must at least be three directors and at least seven shareholders. One of the three directors must be an India resident.

The business must strictly hold statutory meetings along with government approvals for appointing people on the management positions. Shareholders can transfer their shares at ease and their liability is limited to the extent of their capital contributions.

Before commencing with the operations, the company must have a trading certificate and a published prospectus.

Key features

• It must hold statutory meetings and also obtain approvals from government before the management appointment procedures
• Since, a public company Incorpotated in India is not authorized for starting business upon the grant of the certificate of incorporation. For getting eligible to commence a business as a corporation in India, It should mandatorily obtain another document known as trading certificate
• It should publish a prospectus or some statement in lieu of a prospectus before transacting any sort of business

Representative Office / Liaison Office

A Liaison Office can be established with the Government of India’s approval. The basic role of a Liaison Office is very limited and involves promotion of exports/imports, collection of information, and facilitation of technical/financial collaborations.

A Liaison office is not entitled for undertaking any sort of commercial activity directly or indirectly.

Project Office

Foreign companies who have a plan of executing specific projects in the Indian territory can set up temporary site offices in India where activities only relating to that project can be carried out. The Indian Government has now granted general permission to foreign entities for establishing project offices which are subjected to specified conditions.

Branch Office

Foreign companies that are engaged in trading and manufacturing activities abroad are allowed to set up a Branch Office in Indian Territory for the enlisted purposes:

• Import/Export of goods, rendering consultancy or professional services
• Performing the research work where the parent company is already engaged
• Promoting financial or technical collaborations between the parent or overseas group company and the Indian companies
• Representing the Indian parent company and performing as buying or selling agents in India
• Rendering services in India related to Information Technology and software development
• Rendering technical nature support to the products that are supplied by the group/ parent companies
• Foreign shipping or airline company

A branch office does not have the permission of carrying out the manufacturing activities all by its own but it is permitted to subcontract those activities to any random indian manufacturer. Branch Offices that are established with the RBI’s approval, may remit profit from outside India of that branch, net of the Indian taxes applicable and subject to the guidelines and Permissions from RBI for setting up branch offices is granted by the RBI itself.