It’s happening. India is on the move. To put it another way, when a large elephant wakes
When the 2008 LLP Act was introduced, I thought it was
Type of Company Structures / Business Formation:
- Private Limited Company (Private Limited)
- Limited Liability Partnership (LLP)
- One Person Company (OPC)
These structures have proved to be more beneficial than the older structures that have existed. The other structures available include Public Limited Company (Limited), Partnership & Proprietorship. The latest being the One Person Company as a way to encourage corporatization of micro businesses (that’s another way of saying the government is trying to make it easier to tax business).
For instance, if you’re looking to create a product based company – the Private Limited Company or PLC structure might be best, especially if you’re trying to raise money from investors. If on the other hand, you’re looking to provide a service based company – consider the Limited Liability Partnership or LLP as a the best structure. There are some advantages to the LLP over a normal partnership, which is even why Big 4 firms like KPMG have shifted from a partnership to a limited liability partnership, not only to limit risk, but to also save on the tax. If you’re a sole founder, and just want to get started – you could consider the One Person Company, which is similar to the PLC in some respects, and can even be converted into one easier.
|Private Limited Company (PLC)||Limited Liability Partnership (LLP)||One Person Company (OPC)|
|Suited For||Product Focused / Startups (Venture Business)||Service Focused / Startups / Traditional||(Big Ambition) Sole Founders / Startups (Lifestyle Business)|
|Representatives||Shareholders (2 min / 200 max) & Directors (2 min / 15 max)||Partners (2 min / no max)||1 Director + 1 Nominee|
|Shareholders||Individuals, Companies or LLPs||Individuals, Companies or LLPs||Individuals|
|Minimum Capital (Authorized or Paid up Capital)||Min 0 / Max __||Min 0 / Max __||Min 0 / Mix 50L|
|Annual Regulatory Compliance||High||Low||Medium|
|Auditor Appointment||(within 30 days of incorporation) - Form ADT-1||(T/O = 40L or Cap = 25L)||(within 30 days of incorporation)|
|Audited Accounts||(within 60 days of AGM)|
|Filing - Annual Return||(Form MGT-7, within 30 days of AGM - effectively 300 days of FY)||(Form 11, within 60 days of FY)||(Form MGT-7, within 60 days of FY+ 6 months)|
|Filing - Financial Statements (Statement of Accounts & Solvency)||(within 30 days of AGM)||(Form 8, within 30 days of FY)||(Form AOC-4, within 180 days of FY)|
|Filing - Income Tax Return||- T/O 60 L mandatory audit (For non-audited before 31 July, for audited before 30 September)|
|Annual General Meeting (AGM)||(first within 270 days of FY, then onwards 180 days of FY)|
|Board (of Directors) Meeting (BM)||(4x / year)||(2x / year)|
|Directors’ Disclosure||(Form MBP-1 & Form DIR-8)|
|Tax||LLP does not file. Partners only file. (Pass Through)||Higher Tax Liability|
|Governance||Companies Act, 2013||Limited Liability Partnership Act, 2008||Companies Act, 2013|
|ID Proof (Each Representative):|
1. PAN Card [AND]
2. Aadhar Card [OR]
3. Voters ID [OR]
4. Driving License [OR]
1. Bank Statement [OR]
2. Utility Bill [OR]
3. Aadhar Card [OR]
4. Voters ID [OR]
5. Driving License
|Registered Office Proof:|
1. Owner No Objection Letter [AND]
2. Utility Bill [AND]
3. Registry Proof [OR]
4. Property Tax Receipt [OR]
5. Rent Agreement (Notarized) if rented.
|Passport (Sized) Photo|
|Key ID Documents|
|Digital Signature Certificate (DSC) - to digitally sign docs.|| (only one designated partner should apply)|
|Permanent Account Number (PAN) card for bank opening.|
|Tax Account Number (TAN) card|
|Memorandum of Association (MOA)|
|Articles of Association (AOA)|
|Limited Partner (LP) Agreement|
|Closure Compliance Requirements||Moderate / Medium||Few / Low||Unknown|
|NRI Individuals||(But one resident Indian director required as per 182 days rule)||(But one resident Indian director required as per 182 days rule)||Not Allowed|
|Foreign Individuals / FDI||(except manufacturing of defense electronics & brownfield investments in medical devices)||Not Allowed|
|Employed Individuals||(subject to your existing employment agreement)||(subject to your existing employment agreement)||(subject to your existing employment agreement)|
|Corporate Body (Local)|
|Corporate Body (Foreign) / FDI||(Form 27)|
|Possible Conversions||Public Limited Company||Public / Private Limited Company upon T/O 2Cr (Form INC-5)|
|GST Registration||T/O 20L or 10L||T/O 20L or 10L||T/O 20L or 10L|
Terms that you should be familiar with:
Registered Office – This can be your home (owned or rented), not necessarily your primary place of business, but more importantly it should be capable of receiving communication. It need not be a proper office, but you must register with the MCA (Ministry of Corporate Affairs).
Director Identification Number (DIN) or (DPIN) – is a unique lifetime eight-digit identification number which is allotted to an individual who is an existing director or proposed directors of a company, issued by the Ministry of Corporate Affairs, Government of India. To setup you’ll need to complete a form DIN-1 and to update the DIN, you’ll need to complete a form DIR-3, DIN-4, DIR-6 & DIR-7 accordingly. It’s a 100% online process, and costs INR 100, to be paid via the portal.
Digital Signature Certificate (DSC) – is an electronic signature key that can be used by the designated partner/director for filing online (e-file). It is necessary for digitally signing the electronic incorporation documents. A digital signature is a type of asymmetric cryptography used to simulate the security properties of a handwritten signature on paper. Digital signatures have often confused with scanned copies of a physical written signature, which do not have any legal backing for authentication of electronic documents.
Corporate Identification Number (CIN) – CIN is the number allotted to a company registered in India by the Ministry of Corporate Affairs, Government of India. CIN is a 21-digit number that contains the information such as status (listed / unlisted), NIC code of business activity, state of registration, year of registration, private or public and the sequential registration number in the respective state.
Micro, Small & Medium Enterprises (MSME) – registering for MSME, will provide many benefits, loan schemes, perks & reduced tax.
GST Registration – Goods and Service (GST) is a single and comprehensive tax on the supply of goods and services across India, right from the manufacturer to the Consumer. Every person needs to get registered under GST in the state from where he makes
GST Loan Scheme – Companies that have registered MSME certificate can obtain a collateral free loan from the government based on their GST returns filed previously. The owners of the MSME should be IT and GST compliant and should have 6-month bank statement available. The MSME has access to the loan amount of Rs 10 lakh to Rs. 1 crore. The rate of interest relevant to this loan facility is 8% and can be availed in 60 minutes through GSTIN.
Memorandum of Association (MOA) – this is the charter document of a company and contains the name of a company, the state in which the registered office of the company is located, objectives, and its authorised capital. The MOA will be subscribed by the initial promoters of the company in their own handwriting. They will also have to write their name, father’s name, residential address, occupation and the number of shares they agree to subscribe in the company. The MOA should also bear the signature of the witness who knows the subscribers.
Articles of Association (AOA) – this document contains rules and regulations for the management of a company’s internal affairs and conduct of its business. It defines the relationship of company between its members and directors and relation between members & directors. It also describes powers of directors. Further, the AOA describes the rights and duties of its members as well as the duties and responsibilities of its directors. In case of a private limited company, the AOA will contain the restrictions of transfer of shares, if any. Also, AOA usually contains the names of first directors of a company.
The AOA will be subscribed by the initial promoters of the company in their own handwriting. Promoters will have to write their names, father’s name, residential address, and occupation. The AOA should also bear the signature of the witness who knows the subscribers.
Do you require special approvals/licenses for certain activities?
Yes, typically you would. Activities including banking, venture capital, stock exchange, asset management, mutual fund, architecture, merchant banking, securitisation & reconstruction, chit fund & non-banking financial activities require the prior permission from the Indian regulatory bodies such as SEBI, RBI, etc.
However, what I’ve noticed that so long as you pay your taxes, you can ‘start’ and then get approval later on in such activities. There always seems to be a way around these things. (This is my personal opinion and not a legal, tax advice – consult accordingly).
How do you close / shut down a company?
While starting up easy, closing is difficult (particularly in India). You should also be aware of how easy/difficult it is to sell/close the company. There are basically three options you have:
- Declare Defunct.
- Wind Up & Dissolve.
My experience with an LLP closure was pretty straight forward. So long as you sign an indemnity letter / bond that holds you responsible, you should be okay. If you’re not comfortable with this, go through the proper route.
It is necessary to intimate the Registrar for the closure of Private Limited Company (PLC) to update the MCA data and make
Do you really need to register your company?
The answer is surprisingly no. But having a legal entity can protect you and provide you a vessel for moving forward with your business idea (and it shows you’re serious). If you’re just testing out your idea, and haven’t got paying customers yet – think about it. You will have to
How long will it take to incorporate a company in India?
While the country has been moving up the index in terms of ease of doing business. It still takes anywhere between 7 – 30 days to incorporate. While that may seem like a long time, I’ve seen countries promote 24 hours, only that you can’t do anything with those companies until you get all the requisite activity licenses – making it totally useless.
Here are a couple of companies you can avail of for company registration & incorporation:
- CompaniesInn – for company registration (I’ve personally used them, they were the first to register LLPs in India, and also have done for Flipkart – if that brings you any luck :)
- TreeLife (they’re focused on startups, and provide more wholistic services that would be required to manage your business. I’ve interacted with the founders.)
- QuickCompany (provide probably the cheapest and most
- EnterSlice (they appear to have a focus on other countries, and also on FinTech)
- LegalWiz (not reviewed)
- StartupWala (not reviewed)
- Wazzeer (not reviewed)
- Hubco (not reviewed)
- Government Website