Everybody dreams to have a company. Registration of company is the first step to convert this dream into reality. Company registration enables you to start and operate your business in a legal way and also makes you eligible of government assistance. In this article, we will learn step by step process regarding how to register a company in India.
What is Company Registration?
Before discussing company registration, let us first know what is a company. A company is a legal business unit incorporated under the company’s registration online rules established under the Companies Act, 2013 and it comprise of at least two directors, and members/ shareholders.
Now let us understand the company registration. The company registration is a process of acquiring a registration number from the competent authority in India so that you can operate your business legally.
Why to Resister the Company?
The benefits of registering a company are given below:
- The registration provides a recognition to the company by the government bodies. It means that unlike non-separate business entities in India, your Company will exist as per the regulations of the Companies Act, 2013.
- A company can exist perpetually. Any limited business entity can exist perpetually. A one-person company, even though it doesn’t have a direct perpetual succession benefit, can continue to exist by transferring the shares to the nominee.
- The liability of the directors in a company is limited. It means that the debts of the directors or members of the Company are limited by the face value of shares they have purchased.
- The transferring of shares is easy as it requires only a board resolution.
- It becomes easy for a company to own a property after the registration.
- The company is a legal entity and it has the potential to file court cases against others.
- The registration of the company enables it to borrow more money from the market as the banks and other institutions will now be more than willing to lend you money due to its legal status. The investors have faith in the registered companies and they are willing to invest in them.
Type of Companies/ Business Structures in India
In India, companies can be classified into several types based on their legal structure, ownership, and operations. Some of the common types of companies in India are:
This is a type of business in which a single individual owns and manages the business. The proprietor has unlimited liability and is responsible for all debts and losses. It is introduced in the year 2013 and it is the best way to start a company if you want to do the business alone.
A partnership firm is a type of business in which two or more people come together to carry out a business. The partners have unlimited liability for the debt and losses of the company.
Limited Liability Partnership (LLP)
LLP is a hybrid structure that combines the benefits of a partnership firm and a limited liability company. The partners have limited liability and are not personally liable for the debts and losses of the company.
The liability is limited to their agreed contribution to the firm. An LLP is established under the Limited Liability Act, 2008 with the Registrar of Companies (ROC).
Private Limited Company (PLC)
A private limited company is a type of business in which the ownership is restricted to a limited number of shareholders. The liability of the shareholders is limited to the amount of capital they have invested in the company. In the eyes of Law, the Private Limited Company is treated as a separate entity from its shareholders. Every individual is treated as an employee of the family.
Public Limited Company (PLC)
A Public Limited Company is a voluntary association of members incorporated under the Law. A public limited company is a type of business in which the ownership is open to the public and the shares are traded on a stock exchange. The liability of the shareholders is limited to the amount of capital they have invested in the company.
Section 8 Company
Section 8 company is a non-profit organization that is registered under Section 8 of the Companies Act, 2013. It is formed for promoting charitable activities and social welfare.
How to Choose the Right Business Structure while applying for the Company Registration in India?
It is very important to choose the right business structure as your income tax return depends on your company structure. 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 book of accounts need to be mandatorily audited every year, which means that you will have to spend money on the auditing team, Chartered Accountant, tax filing experts, etc.
Choosing right company structure also help you in attracting investors as the investors prefer a recognized legal structure. An investor may hesitate in handing over his/ her money to the sole proprietor while he/ she may be comfortable with LLP or a Pvt. Ltd. Company, etc.
Then the question arises, how to choose the right business structure for yourself.
Ask the following questions with yourself and take a decision based on the answer of these questions.
- How many owners/ partners are there in your business?
If you are a single person to own the company, then the one-person company will be suitable for you. If there are more than one partners in a firm, then the Limited Liability Partnership (LLP) or Private Ltd. Company will be suitable for you.
- How much initial investment, you are willing to make in your business?
If you want to start from a low budget, then the sole proprietor or HUF or Partnership firm will be suitable for you. If you are ready to compensate for initial set up costs and compliance costs, then the One Person Company, LLP or a Private Limited Company will be more suitable in this case.
- How much liability of the business you are willing to take?
Business structures like sole proprietor, HUF, and partnership firm have unlimited liability. It means that in case of any default in loans taken by the company, the loan amount will be recovered from the partners of the firm in the profit sharing ratio. The risk of losing personal assets is high in this case.
However, in case of LLPs or Companies, there is 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. The risk of personal assets is less in this case.
- Does income tax rate determine your business structure?
The income tax applicable in case of sole proprietorship and a HUF is normal tax rate. In this case of sole proprietorship, the income from the business is added to the other incomes of the owner to compute the income tax. In other cases, like the partnership firms and companies, a flat 30% income tax rate is applicable.
- Are you planning to get funding from the investors?
If your business is not registered, then it is difficult to get the investment from the investors. The investors trust LLPs and the Companies, when it comes to invest in a business.
It is important that you choose the right business structure which suits your requirements. You can take advice of the experts before deciding on the business structure.
The following criteria has to be fulfilled to register a company in India:
- There should be at least two directors of the company for a Pvt. Ltd. Company in India.
- The directors and shareholders/members can be considered the same when applying for new company incorporation online.
- There are two types of limited attributes of a company. You must decide before registration, whether you want your company to limit by shares or by guarantee. If shares limit the Company, you will have shareholders. For a company limited by guarantee, there will be members.
- At least one director should be the resident of India in the incorporated company.
- The name of the company should be unique.
Documents Required in Registration
The following are the documents required for registering a company in India:
(1) Identity Proof: A self-attested copy of any of the following documents is required for Indian nationals:
- PAN Card
- Aadhar Card
- Driving License
For foreign nationals, a passport copy is required.
(2) Address Proof: A self-attested copy of any one of the following documents is mandatory for both Indian and foreign nationals
- Aadhar card
- voter ID
- driving license, or any utility bill (telephone or electricity) (not older than 2 months) in the name of the individual.
(3) Photograph: Recent passport-sized photographs of all the directors and shareholders are required.
(4) Proof of Registered Office Address: A self-attested copy of any one of the following documents is mandatory for both Indian and foreign nationals
- Tenancy/rental agreement between the landlord and company/LLP
- Letter or NOC from the landlord of his/her permission to use the office/premises as the LLP’s/company’s registered office.
- Sale deed of the company/LLP office premises in the name of the company/LLP
(5) Memorandum of Association (MOA) and Articles of Association (AOA): The MOA and AOA are the charter documents that define the objectives and rules of the company. These documents must be drafted and signed by the promoters of the company.
(6) Director Identification Number (DIN) and Digital Signature Certificate (DSC): The DIN is a unique identification number for directors, and the DSC is a digital signature that is used to sign documents electronically. These are required for the authorized signatories of the company.
(7) Declaration of Directors: The directors must provide a declaration in Form DIR-2 stating that they are not disqualified to act as a director as per the provisions of the Companies Act.
Apart from the above documents, additional documents may be required depending on the type of company and the activities it will undertake. It is advisable to consult with a professional before starting the registration process.
Company Registration Process in India
The process of registering a company in India involves the following steps:
(1) Obtain Digital Signature Certificate (DSC)
The first step is to obtain a DSC, which is a digital signature that is used to sign documents electronically. This can be obtained from private agencies authorized by the Ministry of Corporate Affairs (MCA). DSC is mandatory for all the proposed directors and the subscribers of the Memorandum of Association (MoA) and Articles of Association (AoA).
(2) Obtain Director Identification Number (DIN)
The next step is to obtain a DIN, which is a unique identification number for directors. This can be done online through the MCA portal. DIN can be obtained while filing the SPICe+ form, i.e. company registration form.
SPICe+ is a web-based company registration form, through which DIN can be obtained for a maximum of three directors. If there are more directors in the company and they do not have a DIN, the company can be incorporated with three directors and it has to appoint new directors later on after incorporation. The appointed directors can obtain DIN by filing the DIR-3 form since only the proposed directors of an existing company can apply for DIN in the SPICe+ form.
(3) Name Approval
The next step is to apply for the approval of the company name. The name must be unique and should not be similar to any other existing company name. This can be done online through the MCA portal.
(4) Drafting of Memorandum of Association (MOA) and Articles of Association (AOA)
The MOA and AOA are the two important documents that define the objectives and rules of the company. These documents must be drafted as per the guidelines provided by the Companies Act.
(5) Filing of Incorporation Documents
Once the name is approved and the MOA and AOA are drafted, the next step is to file the incorporation documents with the Registrar of Companies (ROC) along with the necessary fees. The documents include the MOA, AOA, and other necessary documents such as Form INC-32, Form DIR-12, etc.
(6) Obtain Certificate of Incorporation
After the documents are filed and verified by the ROC, the company will be issued a Certificate of Incorporation (COI). This is a legal document that confirms the existence of the company.
(7) Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN)
The final step is to apply for PAN and TAN. PAN is a unique identification number issued by the Income Tax Department for tax purposes, and TAN is a number used for tax deduction and collection. This can be done online through the NSDL website.
Once the above steps are completed, the company is considered to be officially registered and can start its operations. The entire process usually takes around 15-20 days, depending on the time taken for approval and verification of documents.
A company is a legal business unit incorporated under the company’s registration online rules established under the Company’s act, 2013 and it comprise of at least two directors, and members/ shareholders. There are some eligibility criteria and a procedure for company registration in India. There are many company structures in India as per the Company’s act, 2013. You should know about each company structure before deciding which company structure is suitable to your requirements. The registration of company has many advantages like, it provides you a legal status to your company, investors like to invest in a registered company, etc. You should therefore get your company registered before starting any business.