This post is written by Anushree Tadge, 3rd year law student of ILS Law College, Pune, she tries to explain briefly what are the different kinds of business structure, how one can incorporate and why doing so will be beneficial.
With the rise in entrepreneurship throughout India the efforts for creating more awareness for structuring businesses has to be made. People are expected to incorporate their companies under the Companies Act, 2013 and follow guidelines of Companies (Incorporation) Rules, 2014. The business structure one chooses affects the risk taken by a particular person and leads to difficult paperwork. Incorporation of a company not only guarantees one’s personal assets in cases of financial problems, but it also offers other benefits too.
Types of Companies
Before registering a company, one has to carefully choose amongst the different business structures briefly explained below.
It is the easiest and cost-efficient system of having a business in India. If a particular individual owns as well as manages the company without much external help then this type of structure is called ‘Sole proprietorship’, for example, small traders and even shop owners.
One-person company (OPC)
This is very similar to sole-proprietorship, whereby a single person could start the business. Now there is no actual distinction between the owner and his business in the case of a sole proprietorship, although his type of company helps a person protect his assets more and limit his liabilities. This means all personal belongings & accounts (banks) are protected from financial/ business losses that are likely or unlikely to occur.
Private limited company
This is the most common type of business taking place in India. 93% of companies are registered as a ‘private limited company’. This kind of structure needs a minimum of two shareholders & directors. People who tend to initiate with startups but have expansion plans in the near future choose this particular structure.
Limited Liability Partnership (LLP)
LLP is a popular form of business structure for areas like ‘consulting services’ and ‘professional firms’. In this form, partners have some limited liability on one individual basis and a reduced compliance burden than of a private limited company.
Procedure for incorporation of company
By virtue of the SPICe form (the new company incorporation form) launched since 15th February 2020, The Ministry of Corporate Affairs plans to reduce the time as well as the cost it takes for a person to register a company. It is comparatively a convenient process than the previous one. Conventionally to incorporate a company following steps were to be followed-
Under the Companies Act, 2013 following steps for incorporation are to be followed-
• Firstly, in order of suitability, one name upto a maximum of six names, (showing the main functions/ objects).
• One has to make sure that name does not look similar to or resemble the name of any other already established company by using the services of checking name availability
• Apply to the concerned Registrar of Companies (RoC) and subsequently an eForm1 A is to be filled by logging in to the website. A nominal fee of Rs. 500 is to be paid and the digital signature of the applicant has to be noted.
• Once the name of the company is approved, applicants can successfully apply for registration now. This has to be done within 60 days of name approval.
The registration procedure starts with the filing of Forms – 1, 18, 32.
It is followed by the drafting of the ‘memorandum’ and articles of association by the solicitors, vetting and printing of the same RoC. The memorandum has to be duly signed and appropriate stamp duty is to be paid. The memorandum and articles, both should be signed and witnessed. Please confirm that the memorandum is post-dated. Again, the portal should be logged into and forms are to be filled (names of which are provided below) and mandatory documents are to be attached-
Form 1 which is the Declaration of Compliance.
Form-18 which is the Notice of situation of RoC
Form-32 which is the Particulars of the Director(s), Manager or the Secretary
After successfully submitting the above-mentioned forms, attach the digital signature, complete the payment of filing and registration fees. After the form is successfully processed and completed, the Corporate Identity is generated in order to obtain the ‘Certificate of Incorporation’ from the Registrar of Companies.
The company incorporation procedure using SPICe
With SPICe Form INC-32, incorporating a startup takes not more than two days.
1. Apply for Director Identification Number (DIN)
The first step is the application for DIN, it is an eight-digit number, provided by the Ministry of Corporate Affairs (MCA). Now, this number is person-specific and unique. So if one is to hold the directorship of two companies, another DIN for the other company is not required. Proof of Identity and Address Proof are the necessary requirements for DIN Application.
In case of a new company, application through the SPICe form (Simplified Proforma for Incorporating Company Electronically) is possible
2. Submission of Digital Signature Certificate (DSC)
It is of similar standards to a handwritten signature, DSC authorises the holder to:
- Extract business-related information.
- Sign some selected documents digitally.
3. Register on the MCA Portal and avail facility of SPICe
The Ministry of Corporate Affairs has made the procedure very convenient with the introduction of SPICe Form INC-32. SPICe is a one-way destination for the application, for reservation of name and for the incorporation of a company. The form is easy and accessible, a person can read and fill it accordingly, also attach documents and the process will finish within two days.
4. Receive Certificate of Incorporation
Once the process is completed and the company is successfully registered, The Ministry of Corporate Affairs issues the ‘Certificate of Incorporation’ with a unique ‘Corporate Identity Number (CIN)’. This certificate is the only document which proves a company’s registration with the Registrar of Companies (RoC). After the successful incorporation of the company, a PAN and TAN (for TDS filing) both are allotted and dispatched to the provided address of the registered office. With this, the company incorporation procedure ends and details of the newly incorporated company can be viewed on the MCA website.
Perks of incorporating a business
Since incorporation is not compulsory, people often avoid it but these few perks should be taken into account while making such a decision.
An incorporated company is a unique legal entity altogether that is itself responsible for all the operations. In cases of financial losses or even bankruptcy, the owner’s private assets are protected.
Ease of business
It is easy to avail loans from banks in case business is incorporated. An incorporated business is more credible with respect to business purpose and overall capital structure. Investors and equity funds are usually more interested in supporting companies which are incorporated.
Backups and Credibility
By incorporating a company, the ‘existence’ of the company is confirmed and it continues to irrespective of the individuals regulating it. An incorporated company is regarded as way more credible than one not incorporated in the eyes of lenders, customers and suppliers. It indirectly shows how serious one is regarding his/her business.
With the newly launched SPICe Form, the government has made it very convenient for businessmen to successfully complete the incorporation procedure on their own. It is advised and strongly recommended by professionals like a CA, CS or any other equivalent to incorporate. Their help can also be taken in case any difficulty is faced while completing the procedure.