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In India, you can conduct business through various types of entities, each with its own legal and operational framework. The choice of entity depends on factors like business size, funding requirements, liability concerns, and compliance obligations.
Here are the common types of business entities in India:
Sole Proprietorship
- Features: Owned and managed by a single individual.
- Advantages: Simple to set up, minimal compliance.
- Disadvantages: Unlimited personal liability, limited funding options.
- Best for: Small-scale or single-owner businesses.
Partnership Firm
- Types:
- General Partnership: All partners have unlimited liability.
- Limited Liability Partnership (LLP): Combines benefits of a company and partnership with limited liability.
- Advantages: Easy to set up, shared responsibility, LLP has limited liability.
- Disadvantages: General partnerships have unlimited liability.
- Best for: Medium-sized businesses with multiple owners.
Private Limited Company (Pvt Ltd)
A Private Limited Company (Pvt Ltd) is one of the most popular business structures in India, offering limited liability protection, a separate legal identity, and the ability to attract investors. It is governed by the Companies Act, 2013 and is ideal for startups and growing businesses.
Key Features of a Private Limited Company:
- Separate Legal Entity: The company is distinct from its shareholders and directors.
- Limited Liability: Shareholders’ liability is limited to their shareholding.
- Number of Members:
- Minimum: 2 shareholders and 2 directors.
- Maximum: 200 shareholders.
- Capital Requirement: No minimum paid-up capital requirement.
- Perpetual Succession: The company exists independently of changes in ownership or management.
- Restricted Share Transferability: Shares can be transferred only with the consent of other shareholders.
LLP (Limited Liability Partnership)
LLP is a popular business structure in India that combines the flexibility of a partnership with the advantages of limited liability. It is governed by the Limited Liability Partnership Act, 2008 and is suitable for professionals, small and medium businesses, and startups.
Key Features of LLP
- Separate Legal Entity: An LLP is distinct from its partners. It can own assets, incur liabilities, and enter into contracts in its name.
- Limited Liability: Partners’ liability is limited to their capital contribution. Their personal assets are not at risk for the debts of the LLP.
- Minimum Partners: Requires at least two partners, with no maximum limit. At least one partner must be an Indian resident.
- No Minimum Capital Requirement: There is no mandatory minimum capital contribution.
- Perpetual Succession: The LLP continues to exist even if partners change, retire, or die.
- Flexible Management: Partners can define their roles and responsibilities in an agreement, offering operational flexibility.
Best For:
- Startups seeking funding.
- Small to medium-sized businesses with growth potential.
- Entrepreneurs requiring a credible and scalable business structure.
If you’d like further assistance with registering or managing a Pvt Ltd company, Contact Us!
LLP (Limited Liability Partnership)
LLP is a popular business structure in India that combines the flexibility of a partnership with the advantages of limited liability. It is governed by the Limited Liability Partnership Act, 2008 and is suitable for professionals, small and medium businesses, and startups.
Key Features of LLP:
- Separate Legal Entity: An LLP is distinct from its partners. It can own assets, incur liabilities, and enter into contracts in its name.
- Limited Liability: Partners’ liability is limited to their capital contribution. Their personal assets are not at risk for the debts of the LLP.
- Minimum Partners: Requires at least two partners, with no maximum limit. At least one partner must be an Indian resident.
- No Minimum Capital Requirement: There is no mandatory minimum capital contribution.
- Perpetual Succession: The LLP continues to exist even if partners change, retire, or die.
- Flexible Management: Partners can define their roles and responsibilities in an agreement, offering operational flexibility.
One Person Company (OPC)
A One Person Company (OPC) is a unique business structure in India, introduced under the Companies Act, 2013, allowing a single individual to operate as a company while enjoying the benefits of limited liability. It is ideal for solo entrepreneurs looking for a structured and scalable business model.
Key Features of an OPC:
- Single Owner: Owned by one individual who acts as both the shareholder and director.
- Limited Liability: The owner’s personal assets are protected; liability is limited to the company’s debts.
- Separate Legal Entity: The OPC is distinct from its owner, capable of owning property, entering contracts, and incurring liabilities in its name.
- Nominee Requirement: The owner must appoint a nominee to take over in case of death or incapacity.
- No Minimum Capital Requirement: There’s no mandatory minimum capital to start an OPC.
- Conversion Restriction: Cannot voluntarily convert to a private/public company until 2 years after incorporation, unless the turnover exceeds ₹2 crore.
Nidhi Company
A Nidhi Company is a type of non-banking financial company (NBFC) in India, specifically focused on encouraging savings among its members. These companies operate on the principle of mutual benefit and provide financial services only to their members. Nidhi Companies are regulated by the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013, and the Nidhi Rules, 2014.
Key Features of a Nidhi Company:
- Mutual Benefit: Designed for members to save money and access credit facilities.
- Member-Only Operations: Services are restricted to its members.
- Non-Banking Entity: Does not require an RBI license but must comply with Nidhi Rules.
- Encourages Savings: Accepts deposits from and lends money to members for mutual financial well-being.
- Limited Business Scope: Cannot engage in speculative activities, hire-purchase finance, or other businesses.
Eligibility to Start a Nidhi Company
- Minimum Members:
- Initially, 7 members (including 3 directors) are required to incorporate.
- Must have at least 200 members within the first year of incorporation.
- Minimum Capital: ₹10 lakh initial paid-up capital.
- No Preference Shares: Only equity shares are allowed to raise funds.
Best For:
- Groups aiming to promote thrift and savings among members.
- Small financial institutions operating within a localized community.
A Nidhi Company is an excellent choice for individuals or organizations aiming to encourage savings and provide accessible credit facilities within a trusted member network.
NBFC (Non-Banking Financial Company)
NBFC is a financial institution in India that offers banking services like loans, credit facilities, and investments but does not hold a banking license. NBFCs are regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934, and they play a crucial role in providing financial services to underserved sectors.
Key Features of NBFCs
- No Banking License: Cannot accept demand deposits (e.g., savings/current accounts).
- Regulated by RBI: Governed by RBI rules for registration, capital requirements, and operations.
- Financial Activities: Includes lending, leasing, hire purchase, asset financing, and investing in shares and debentures.
- Customer Segments: Primarily serve individuals, MSMEs, and rural sectors that may lack access to traditional banking.
Entity For foreign Owners
Foreign Company or Subsidiary
A Foreign Company or its Subsidiary in India refers to a business entity established by a foreign corporation to operate within India. It allows foreign businesses to access the Indian market while complying with local laws. The choice of structure depends on the company’s goals, scale, and operational needs.
Foreign Company
As per the Companies Act, 2013, a Foreign Company is an entity incorporated outside India that conducts business in India through:
Options for Foreign Companies in India
- Branch Office:
- For specific activities like export/import, research, or consultancy.
- Cannot carry out manufacturing but can oversee Indian manufacturing operations.
- Liaison Office:
- For communication and coordination between the foreign company and Indian entities.
- Cannot undertake commercial activities.
- Project Office:
- For executing specific projects in India.
- Subsidiary Company:
- Functions as a Private Limited Company with the foreign parent company owning the majority or full stake.
Wholly-Owned Subsidiary
An Indian company where 100% of the shares are owned by the foreign parent company.
Section 8 Company
A Section 8 Company in India is a type of non-profit organization established under the Companies Act, 2013, specifically under Section 8. It is formed to promote charitable objectives such as education, art, science, sports, environment, social welfare, or similar purposes.
Key Features of a Section 8 Company
- Non-Profit Purpose: Profits are not distributed to members but are reinvested in the organization’s objectives.
- Legal Entity: Operates as a separate legal entity with limited liability for its members.
- Tax Benefits: Eligible for tax exemptions under the Income Tax Act, 1961.
- No Minimum Capital Requirement: Can be established with any amount of initial capital.
- Perpetual Succession: Continues to exist regardless of changes in membership or management.
- No Dividend Distribution: Cannot pay dividends to its members or shareholders.
Best For:
- Charitable trusts.
- NGOs focusing on education, healthcare, environment, or social welfare.
- Organizations aiming for sustainable development and societal impact.
A Section 8 Company is ideal for individuals or groups aiming to contribute to society in a structured and legally recognized way while enjoying benefits like tax exemptions and limited liability.
Trust
A Trust is a legal arrangement in which a person (the Settlor) transfers assets to another person or entity (the Trustee) to manage and use for the benefit of a third party (the Beneficiary). In India, trusts are governed primarily by the Indian Trusts Act, 1882, and are commonly used for charitable, religious, or private purposes.
Public Trust:
- Established for public welfare and charitable purposes.
- Examples: Education, healthcare, relief of poverty, or advancement of religion.
- Regulated by state-specific laws for public trusts.
Private Trust:
- Created for the benefit of specific individuals or groups.
- Commonly used for managing family wealth or assets.
Key Features of a Trust
- Settlor: The person who creates the trust and transfers the assets.
- Trustee: The individual or organization responsible for managing the trust in accordance with its objectives.
- Beneficiary: The individual(s) or group for whom the trust is established.
- Trust Deed: The legal document outlining the trust’s purpose, rules, and administration.
- Irrevocability: A trust, once created, cannot usually be revoked unless explicitly stated in the trust deed.
Best For:
- Public Trusts: NGOs, educational institutions, and healthcare organizations.
- Private Trusts: Wealth management and estate planning for families or individuals.
A Trust is an effective tool for achieving social or financial objectives while ensuring transparency and continuity in managing assets.