Types of Company Formation to help you setup your Business (2018)

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.

A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name. The fictitious name is simply a trade name–it does not create a legal entity separate from the sole proprietor owner.

 

The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost. A sole proprietor need only register his or her name and secure local licenses, and the sole proprietor is ready for business.

The advantages of a sole proprietorship include:
  • Owners can establish a sole proprietorship instantly, easily and inexpensively.
  • Sole proprietorships carry little, if any, ongoing formalities.
  • A sole proprietor need not pay unemployment tax on himself or herself
  • Owners may freely mix business or personal assets.
The disadvantages of a sole proprietorship include:
  • Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.
  • Owners cannot raise capital by selling an interest in the business.
  • Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value.

 

 

 

Partnership

Partnership is  form of business operation between two or more individuals who share management and profits. The federal government recognizes several types of partnerships.

 

Limited Liability Partnership

The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.

Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

Rights & Duties of Partners

Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.

LLP shall be a body corporate and a legal entity separate from its partners

Difference between Partnership Vs. LLP

Partnership   LLP
Not a Legal EntityLegal Entity
Minimum 2 Partners Minimum 2 Partners
Maximum 20 Partners No Limit
Partners are jointly liable To the extent of Their contribution
Registration is not compulsory Compulsory
BS etc. need not be filled Filling is compulsory
Audit is not Compulsory Compulsory if Turnover is Rs.40   Lakhs or contribution is Rs. 25 Lakhs
Name may be anyMust be approved by Registrar and must have LLP as suffix
Minor can become Partner Minor can not become Partner

Company VS LLP

Difference between the LLP and Private Limited Co.

S. No.Factors of comparisonPrivate limited companyLimited liability partnership
1.Maximum number of members200None
2.Requirements for complianceAnnual return filling  borad meetings and general meetingsAnnual return filling and Statement of Account & Solvency.
3.AuditcompulsoryOnly if contribution more than Rs. 25 lakhs or turnover exceeds Rs. 40 Lakhs
4.ConversionCan be converted to LLPCannot be converted into a company
5.ProcedureObtain DSC (Digital Signature Certificate) Obtain DIN (Directors Identification Number) Name Approval Filing for IncorporationObtain DSC (Digital Signature Certificate) Obtain DPIN (Designated Partner Identification Number) Name Approval Filing for Incorporation File LLP Agreement
6.Time for registration15-20 days10-15 days
7.Dividend distribution taxApplyNot apply

 

One Person Company

 

  1. Only One Shareholder:

Only a natural person, who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company. Explanation: The term “Resident in India” means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.

  1. Nominee for the Shareholder:

The Shareholder shall nominate another person who shall become the shareholders in case of death/incapacity of the original shareholder.  Such nominee shall give his/her consent and such consent for being appointed as the Nominee for the sole Shareholder.   Only a natural person, who is an Indian citizen and resident in India shall be a nominee for the sole member of a One Person Company.

  1. Director:

Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The Company may have a maximum number of 15 directors.

Terms and Restrictions of OPC

  1. A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company.
  2. Minor cannot shall become member or nominee of the One Person Company or can hold share with beneficial interest.
  3. An OPC cannot be incorporated or converted into a company under Section 8 of the Act. [Company not for Profit].
  4. An OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporate.
  5. An OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond Rs.50 Lakhs or its average annual turnover during the relevant period exceeds Rs.2 Crores i.e., if the Paid-up capital of the Company crosses Rs.50 Lakhs or the average annual turnover during the relevant period exceeds Rs.2 Crores, then the OPC has to invariably file forms with the ROC for conversion in to a Private or Public Company, with in a period of Six Months on breaching the above threshold limits.

Steps to Incorporate One Person Company (OPC)

  1. Obtain Digital Signature Certificate [DSC] for the proposed Director(s).
  2. Obtain Director Identification Number [DIN] for the proposed director(s).
  3. Select suitable Company Name, and make an application to the Ministry of Corporate Office for availability of name.
  4. Draft Memorandum of Association and Articles of Association [MOA & AOA].
  5. Sign and file various documents including MOA & AOA with the Registrar of Companies electronically.
  6. Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty.
  7. Scrutiny of documents at Registrar of Companies [ROC].
  8. Receipt of Certificate of Registration/Incorporation from ROC.

 

Private Limited Company

 

legal entity created externally and artificially apart from those who created it and those who carry out its operations. According to Section 3(1) two or more persons can form a Private Limited Company to conduct any lawful business.

The three basic methods to form a Private Limited Company as per Section 3 (2) are listed below.

  • A company limited by shares.
  • A company limited by guarantee.
  • An unlimited company.

A private limited company must have a minimum of two directors and can have up to a maximum of fifteen directors. The shareholders could be natural persons or companies, including foreign companies.

 

  1. Members– To start a company, a minimum number of 2 members are required and a maximum number of 200 members as per the provisions of the Companies Act, 2013.
  2. Limited Liability– The liability of each member or shareholders is limited. It means that if a company faces loss under any circumstances then its shareholders are liable to sell their own assets for payment. The personal, individual assets of the shareholders are not at risk.
  3. Perpetual succession– The company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. This leads to perpetual succession of the company. The life of the company keeps on existing forever.
  4. Index of members– A private company has a privilege over the public company as they don’t have to keep an index of its members whereas the public company is required to maintain an index of its members.
  5. A number of directors– When it comes to directors a private company needs to have only two directors. With the existence of 2 directors, a private company can come into operations.
  6. Paid up capital– It must have a minimum paid-up capital of Rs 1 lakh or such higher amount which may be prescribed from time to time.
  7. Prospectus– Prospectus is a detailed statement of the company affairs which is issued by a company for its public. However, in the case of private limited company, there is no such need to issue a prospectus because in this public is not invited to subscribe for the shares of the company.
  8. Minimum subscription– It is the amount receive by the company which is 90% of the shares issued within a certain period of time. If the company is not able to receive 90% of the amount then they cannot commence further business. In case of private limited company shares can be allotted to the public without receiving the minimum subscription.
  9. Name– It is mandatory for all the private companies to use the word private limited after its name.

 

 

Difference between OPC and Private Company

Following points clearly differentiate the Private Limited Company and One Person Company:

ParticularsOne Person CompanyPrivate Limited Company
Name of the entityThe name of the One Person Company must be ended with the word ‘OPC’ in the brackets.The name of the company must have suffix ‘Private Limited’.
Number of shareholdersOnly one member is required to form One Person Company.Minimum- 2 members

Maximum-200 members

Number of directorsMinimum one director is required which can be extent to maximum 15 without any special resolution.Minimum two directors are required to form a private company which can also be extent to maximum 15.
TransferabilityIn one person company shares can be transfer only by altering the MOA (Memorandum of Association).In private company shares can be transfer easily.
Appointment of nomineeAppointing a nominee is necessary by the sole member of the company who must be a resident of India.No such requirement in case of private company.
Board MeetingOne board meeting must be hold in each half of the calendar year and the gap between the meetings must be at least 90 days. In case of one director, no need to hold a board meeting.One board meeting must be hold in each quarter of the calendar year and the maximum gap between two meetings can be 120 days.
Annual General Meeting (AGM)In case of OPC no requirement to hold an AGM.In private company an AGM is required to conduct within 180 days from the end of the financial year.
NRIs or foreign nationals as shareholderNRI or foreign nationals cannot be a member of the OPC because a natural person who is a resident of India can be a member or nominee of the company.There is no such restriction in private company. NRI can be a shareholder in private company.
ConversionOPC can be converted into private company after two years of incorporation or by crossing the threshold limit.A private company can be converted into One Person Company. But, threshold concept is not applied to the private company.
Annual FilingsFinancial statements (excluding cash flow statement) and annual return required to be filed with the registrar.In case of private company annual accounts and annual return are required to be filed with the ROC.

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