Why is it important to choose the right business structure?
It is important to choose your business structure carefully as your Income Tax Returns will depend on it. While registering your enterprise, remember that each business structure has different levels of compliances that need to be met with. For example, a sole proprietor has to file only an income tax return. However, a company has to file an income tax return as well as annual returns with the registrar of companies.
A company’s books of accounts are to be mandatorily audited every year. Abiding by these legal compliances requires spending money on auditors, accountants and tax filing experts. Therefore, it is important to select the right business structure when thinking of company registration. An entrepreneur must have a clear idea of the kind of the legal compliances he/she is willing to deal with.
While some business structures are relatively investor-friendly than others, investors will always prefer a recognized and legal business structure. For example, an investor may hesitate to give money to a sole proprietor. On the other hand, if a good business idea is backed by a recognized legal structure (like LLP, Company, etc.) the investors will be more comfortable making an investment.
How to choose a business structure while applying for company registration in India?
Let’s take a look at some important questions every entrepreneur must ask himself before he/she finally decide upon a business structure.
i. How many owners/partners will your business have?
If you are a single person who owns the entire initial investment required for the business, a One Person Company would be ideal for you. On the other hand, if your business has two or more owners and is actively seeking investment from other parties a Limited Liability Partnership (LLP) or Private Limited Company would suit you best.
ii. Should your initial investment determine your choice of business structure?
The answer to that question is – Yes if you want to spend less initially, it would be wise to go in for a Sole Proprietor, or a HUF or a Partnership. But, if you are sure that you will be able to recover the setup and compliance costs, you can opt for a One Person Company, LLP or a Private Limited Company
iii. Willingness to bear the entire liability of the business
Business structures like sole proprietor, HUF, and partnership firm have unlimited liability. This means, in case of any default in loans, the entire money will be recovered from the members or partners in profit sharing ratio. The risk to personal assets is high in these cases.
Whereas, Companies and LLPs have a limited liability clause. This means that the liability of its members is restricted to the amount of contribution made by them or the value of shares each member holds.
iv. Income Tax Rates Applicable to businesses
The income tax rates applicable to a sole proprietorship and a HUF are the normal slab rates. In case of a sole proprietorship, the business income is clubbed with the individual’s other income.
But in the case of other entities like partnership and company a tax rate of 30% is applicable.
v. Plans of getting money from investors
As mentioned earlier, it is difficult to get investments when your business structure is unregistered. Entities like LLP and Private Limited Company are trusted when it comes to investment. Make sure you choose the right structure, seek the help of an expert so that you register under proper guidance.
Benefits of Company Registration in India
A company registration provides many advantages. A licensed company makes it genuine, and enhances the business’ credibility.
1. Protects against personal obligation, and defends against other threats and losses.
2. Builds goodwill and also supports more customer attraction
3. Gives reliable investors bank credits and good investment with ease.
4. Provides cover of the responsibility to protect the company’s assets
5. Bigger commitment to wealth and greater stability
6. Increases the ability to develop and grow large
How to Register a Company in India?
Registering a company in India is now a simple 4-step process. Here is what you’ll need to acquire:
i. A Digital Signature Certificate (DSC)
ii. A Director Identification Number (DIN)
iii. Registration on the MCA Portal or New user registration
iv. Certificate of Incorporation
Documents required for Company Registration
In India, registration of private limited company cannot be done without proper proof of identity and proof of address. Proof of identification and address would be required for the incorporation of all the company’s directors and shareholders.
The organization must have a registered office in India for online business registration in India. A recent copy of an energy bill or the property tax receipt or water bill must be sent to confirm admission to the registered office. In addition to the tenancy agreement, the maintenance bill or the sale deed or a letter from the landlord with his/her permission to use the office as the company’s registered office is accepted.
An identity and address proof of all the directors and the subscribers to the share capital must be submitted.