Private Ltd, LLP or Public Ltd Which To Choose When Going For New Company Registration in India

Recently a friend of mine who was working with an established corporate, drawing a hefty monthly salary decided to leave a job for starting his own business. He wanted to become an entrepreneur without knowing the pros and cons  of running a business and have not known the reality of unstable/unbalanced lifestyle from a stable one.

With a business idea in a mind, he wanted to launch a start-up soon but was confused what type of business he should incorporate to launch his idea. I am sure, there are many of them like my friend sailing in the same boat, have no idea on how to start and what kind of company should they incorporate. – This post is essentially targeted to those people.

Out of 10 start-ups, more than 5 do not have any knowledge about the legal terms. All they have is idea, but not sure how to and where to start. As per the recent survey, it has been witnessed that in the incorporation of legal entities there has been 26% rise in private limited company formation and One Person Company Formation is on rise. Every month there is more than 50,000 new company registration in India and out of the these legal entities, more than half are in 3 states only i.e. Uttar Pradesh, Maharashtra and New Delhi.

Fortunately, the new rules and regulations are easier when it comes to start-up a new business in India. Also, there are hassle free new company registration service providers available in India who take care of A to Z of forming and registration of the company. In this post, we will touch upon various forms of new company registration presently available and which is best suited for your business.

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Different types of New Company Registration/Business Incorporation

To start with, below mentioned is explanation for new company registration that are done in India:

Sole Proprietorship: The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

When to incorporate: However, after the introduction of the concept of One Person Company. It is not recommended to form a proprietorship in India.

Limited Liability Partnership: Partnerships when given the feature of limited liability, the LIMITED LIABILITY PARTNERSHIPS came into picture. LLP is a separate legal entity and which can be formed in India by minimum of two persons with a motive of earning profit.

When to incorporate: LLP enjoys the benefits of private limited company and traditional partnerships, therefore, because of increasing compliance in private limited company, it is recommended for start-ups to incorporate LLP if they are not planning to raise investments in future.

Partnership: A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business. Partnerships are easy to form. There is no minimum capital requirement. Only two people are needed to incorporate the partnership.

When to incorporate:Partnerships are basically like proprietorship with an only difference that it involves two persons. If you are two or more persons wants to start the business early, you can register partnerships and later on can convert it into private company.

Private Limited Company: Private Limited company is the most preferred form of business. Private company can be form by two persons. Private company is the ultimate form of business, because in this form, owners can do any type of complex business transaction as they like. For e.g. they can issue ESOPs, raise capital etc.

When to incorporate: If you are 2 people, willing to start a business, and also plans to raise the funds in future, then private limited company is the best option for you.If you don’t plan to raise funds, but you wants to have a strong foundation, then also private limited company is recommended for your new company registration.

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One Person Company: OPC can be regarded as a refined form of proprietorship. Only 1 person is required to form the OPC and enjoys all the benefits of a normal limited liability company.

When to incorporate: If you are a single founder and planning to start a business or your are already running a business as a proprietor, then OPC is actually an ideal choice for a new company registration. Also, owner can anytime convert OPC at ease.

Public Limited Company: Public limited Company is the biggest and the most powerful form of business in India. Public limited companies gives the trust that you are doing something big and also they have noted that the valuation of business increases by 10 to 15 times.

When to incorporate: If you are really planning something big or you have actually running a big business and also you wants to expand it, public limited company is the best option for you.

The above mentioned is just giving a basic idea about different forms of new company registration. There are few things that goes with this:

Key Facts To Consider While Choosing New Company Registration in India:

Legal existence:

For a start-up it is best to first consider whether he wants to start business under a legal entity or under his own name.

Number of individuals involved:

For a start-up it is best to first consider whether he wants to start business under a legal entity or under his own name.

Capital Requirements:

Choosing a right form is also depending upon the initial capital eligibility and future funds availability.

Funding Requirements:

If in near future, funding is required in the start-up, then it has to be planned in the initial stage of business.

Restriction on Personal Liability:

It has to be decided in the initial stage whether the key persons is liable personally or there should be restriction.

Choosing company as forms of business

The first preference for start-ups is to form a private limited company because in all probability they have to raise funding by diluting their equity in future and in other forms of business like LLP, Proprietorship, Partnership, it is very difficult for a start-up to convince its investor to invest. However, with the new company registration act, One Person Company is also becoming popular form of venture for start-ups these days.

Bottom Line

Choosing new company registration is as important as the execution of the idea. If your idea needs funding then Proprietorship and partnership cannot not give the right plough back what your business needs. So, before choosing new company registration, look over all the aspects that can affect your decision of starting a business.

Finsmart Solutions is an establish name when it comes to new company registration in India. It has an established network of services that offers one stop solution when it comes to company formation procedure. Apart from Finsmart Solutions, other leading names include like Mak Biz Advisors, Promod Gupta and Company, D.Batra & Co. and Legal Fin India.