Being a fast-growing nation that is also classified as the world’s largest democracy, India is an intriguing and profitable market for entrepreneurs and investors.
India provides numerous advantages for starting a business for foreigners in terms of access to a huge working population, comprehensive tax systems, government initiatives, the work ethics of Indians, and business-friendly policies.
In a bid to attract foreign investment, the Indian government has reduced foreign direct investment (FDI) limitations. Also, various technical and management institutions in India are accredited with the highest international standards and supported by regional and bilateral free trade agreements.
All in all, starting a business in India is highly recommended for foreign entrepreneurs and investors.
Types of business structures in India
As an entrepreneur or investor looking to start a business in India, choosing the applicable business structure is the first step to take.
There are several kinds of business structures prevailing in India, some of which are explained below;
- Sole Proprietorships: a Sole Proprietorship in India is a business that is entirely controlled by one person. Such an establishment and its owner are not considered separate entities. There is no formal registration needed to start a business in India under Sole Proprietorship.
- Limited Liability Partnership (LLP): an LLP in India is a separate legal entity where the liabilities of partners are limited only to their agreed contribution. As opposed to partnership firms, partners in an LLP are not saddled with unlimited liabilities caused by the business. A limited liability partnership and its partners are separate legal entities.
- Private Limited Companies: a private company in India is a privately owned company registered for small companies. Most Startups and businesses in India with higher purposes choose Private Limited Companies as a desirable business structure. It has shareholders and directors. And each individual is regarded as an employee of the company.
- Public Limited Companies: as the name indicates, Public limited companies in India are public by nature which means that their shares are available to the general public. A public limited is formed by a minimum of 7 persons with a minimum paid-up capital.
- The company may get listed on the stock exchange and afterward shares of the same are traded openly. There are more legal restrictions on Public limited companies than on Private Limited Company.
- One-Person Companies: recently introduced in the year 2013, one person company in India means a company that has only one person as a member. All the shares in this company can be owned by one person but there must be a nominee for the sole member to register this form of business.
Other forms of business structures in India include Hindu Undivided Family, Partnership firms, Section 8 Companies, Joint Venture Companies, and Non-Governmental Organizations.
You can select what business structure suits your business needs best and accordingly register the business.
Step-By-Step Process for company formation in India
- Determining your business structure
This is one of the most important l steps for the registration of a company anywhere around the world (India included). Determining the business structure will define the path the company will take and how it handles operations for its entire lifetime.
- Reservation of the company’s name
The next step in the company registration process is reserving the name of the company. An application for company name authorization is first submitted to the Ministry of Corporate Affairs (MCA) to reserve the company name.
MCA checks the following important factors while approving the company name:
- The name should be unique, and no other company should be using that name.
- The name shouldn’t be offensive.
- The name shouldn’t give a notion that it’s linked with the government.
In the name authorization application, 1 or 2 names with business objectives can be submitted. Generally, the MCA approves all name approval applications in a few days.
Procuring a digital signature certificate (DSC)
Once the company name has been authorized by MCA and registered, the next step is obtaining a digital signature certificate (DSC) for the company.
DSC is practically the digital equivalent of physical certificates. It is used to verify the identity of a person or sometimes to access information and get services on the internet or to sign specific documents digitally.
DSC holds all the vital information about the registered signatory like name, address, email, phone number, and the authority which has given the certificate.
DSC can be procured from government-recognised certifying authorities.
Apply for Director Identification Number (DIN)
The DIN is an identification number for a director and it has to be acquired by anyone who wants to be a director in a company. The DIN of all the directors of the company along with the name and the address proof are to be given in the company registration form. DIN can be acquired while filing the SPICe+ form. (SPICe+ is a web-based company registration form, through which DIN can be procured for a maximum of three directors.)
Company official incorporation
Once the digital signatures are acquired, the incorporation application can be filed in SPICe Form to the MCA with all appropriate attachments. Along with the incorporation application, the Memorandum of Association (MOA) – the constitution of the company and Articles of Association (AOA) – the document that enlists the purpose of the company and how its business will operate, of the company are filed.
If the MCA finds the incorporation application to be comprehensive and acceptable, the Incorporation Certificate will be granted along with the PAN of the company. The MCA normally accepts all incorporation applications in a few days.
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