Business Registration Guidebook

THE PRACTICALSTART-UP

GUIDEBOOKFind the legal structure that suits

your business

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The Practical Start-up Guidebook

Contents

Comparison Criteria 04

Introduction 03

Private Limited Company 09

Limited Liability Partnership 13

One-Person Company 17

General Partnership 21

Sole Proprietorship 25


PARTNER, DIRECTOR OR PROPRIETOR?ITS EASIER THAN IT SEEMS

03

It should take no longer than 5 minutes to choose between the available legal structures for your business. Your

options are the Private Limited Company, Limited Liability Partnership (LLP), One-Person Company (OPC), General

Partnership and Sole Proprietorship. But the general approach to this decision is so academic, entrepreneurs end up

wasting their time. Theres no need to educate yourself on the minute dierences between say, a Private Limited

Company and an LLP. This is because, with only a few exceptions, every business will be suited to just one legal

structure. For example, theres no need for the founder of a tech start-up to know the tax benets of an LLP if it

doesnt allow outside funding to be raised, is there?

All you need to do is match the needs of your business with the 4 simple questions weve answered in this e-book.

So long as youre clear of your current nancial capacity and have given thought to your long-term goals, you

should be ready to get started immediately. Do, however, take the time to nd out more about your chosen

business structure. All this information follows the comparisons. They should answer all your questions.

Nonetheless, if you have any questions, feel free to mail us at [email protected].


The Practical Start-up Guidebook 04

WHOSE FUNDING NEEDS DOES IT SUPPORT?

PRIVATE LIMITED COMPANY


For start-ups looking to build a scalable business by raising equity, this is the only option. Investors are likely to demand conversion to this structure before investing.

LIMITED LIABILITY PARTNERSHIPFor professional services rms that can manage on debt. Private Equity funds and Venture Capitalists are unlikely to invest as it would require them to become partners.

ONE-PERSON COMPANYPick it if youre a single promoter planning to run the business with no outside funding or debt alone. However, OPCs need to be converted to private limited companies once they reach a turnover of Rs. 2 crore. So if youre aiming to run a large business, stay away.

PARTNERSHIP FIRMSmall merchants and traders requiring no external funding can opt for this. The partners are, after all, personally liable for all debts the partnership cannot pay itself.

SOLE PROPRIETORSHIPOnly small merchants and traders requiring no

external funding should opt for this. The proprietor is, after all, personally liable for all

debts the business cannot pay itself.


WHAT WILL BE MY START-UP COSTS?

PRIVATE LIMITED COMPANYA relatively expensive option, with registration costs starting at Rs. 16,000 and minimum paid-up capital of Rs. 1 lakh. It takes 20 to 25 days to incorporate.

LIMITED LIABILITY PARTNERSHIPSubstantially cheaper than the Private Limited Company, with just registration costs of Rs. 11,000. Theres no paid-up capital.

ONE-PERSON COMPANYMarginally cheaper than the Private Limited Company, with registration costs starting at Rs. 15,000 and minimum paid-up capital of Rs. 1 lakh. This will also take 20 to 25 days to incorporate.

PARTNERSHIP FIRMIf you choose not to register the parternship deed, you can get started at just Rs. 1999. With registration, it would work out to Rs. 10,000, same as the LLP.

SOLE PROPRIETORSHIP

Your start-up costs are only what it costs to get the license/s you need (Sales Tax registration, for example). These start at Rs. 5000.



WHAT ARE THE MANDATORY COMPLIANCES?


All such businesses must maintain books of accounts, comply with statutory audit requirements and submit income tax returns and annual lings with the Registrar of Companies (RoC).

LIMITED LIABILITY PARTNERSHIPAll such businesses must maintain books of accounts, comply with statutory audit requirements (if turnover exceeds Rs. 40 lakh or capital contribution exceeds Rs. 25 lakh) and submit income tax returns and annual lings with the RoC.ONE-PERSON COMPANY

All such businesses must maintain books of accounts, comply with statutory audit requirements and submit income tax returns and annual lings with the RoC.

PARTNERSHIP FIRMAll such businesses must maintain books of accounts, comply with tax audit requirements (if turnover exceeds Rs. 1 crore) and submit income tax returns.SOLE PROPRIETORSHIP

It is advisable (but not necessary) for sole proprietorships to maintain books of accounts. Filing of returns is mandatory.



WHAT ARE THE TAX ADVANTAGES?

$$

PRIVATE LIMITED COMPANYLIMITED LIABILITY PARTNERSHIP

ONE-PERSON COMPANY

PARTNERSHIP FIRMTaxed at 30%. Remuneration paid to partners can be claimed as deduction, restricted to the limits specied (under the IT Act). MAT does not apply.

SOLE PROPRIETORSHIP

Individual slab rates would be applicable. Option to declare prots at 8% of revenue

when turnover is less than Rs. 1 crore.

PRIVATE LIMITED COMPANYNo general advantages (industry-specic advantages are available). Tax to be paid at at rate of 30% on prots, Dividend Distribution Tax (DDT) applies, as does Minimum Alternate Tax (MAT).

LIMITED LIABILITY PARTNERSHIPNo general advantages (industry-specic advantages are available). Tax to be paid at at rate of 30% on prots. However, MAT is applicable. DDT does not apply. Wealth tax is also not applicable.ONE-PERSON COMPANY

No general advantages (industry-specic advantages are available). Tax to be paid at at rate of 30% on prots, DDT applies, as does Minimum Alternate Tax (MAT).

PARTNERSHIP FIRM

SOLE PROPRIETORSHIP



WILL THE BUSINESS SURVIVE THE DEPARTURE OF A PROMOTER?

PRIVATE LIMITED COMPANYLIMITED LIABILITY PARTNERSHIPYes. An LLP has a legal existence independent of its partners. There must be a minimum of 2 directors. There is no limit to the number of partners.

ONE-PERSON COMPANY

Yes. All OPCs must appoint a nominee director. In case of the death of the original director, the nominee director takes over the business.

PARTNERSHIP FIRMNo. The departure of a partner would bring an end to the Partnership Deed. There must be a minimum of 2 partners. There can be a maximum of 15 partners.

SOLE PROPRIETORSHIP

The Sole Proprietorship is totally reliant on the involvement of the proprietor. It will not survive

his/her departure.

Yes, of course. So long as there are a minimum of 2 directors and shareholders, the business can go on. This is because a private limited company has a separate legal existence.


09

Private Limited Company, the most popular legal structure for

businesses, should be chosen by anyone looking to build a

scalable business. Start-ups and growing companies pick it

because it allows outside funding to be raised easily, limits the

liabilities of its shareholders and enables them to oer em-

ployee stock options to attract top talent. As these entities

must hold board meetings and le annual returns with the

Ministry of Corporate Aairs (MCA), they tend to be viewed

with more credibility than an LLP or General Partnership.


Business Registration Guidebook


Advantages

Limited Liability: Businesses often need to borrow money. In structures such as General Partnership,

partners are personally liable for all the debt raised. So if it

cannot be repaid by the business, the partners would have to

sell their personal possessions to do so. In a private limited

company, only the amount invested in starting the business

would be lost; the directors' personal property would be safe.

Investment-ready: Private limited companies easily accommodate equity funding as there is a clear

distinction between shareholders and directors as

well as limited liability. In fact, venture capitalists and private

equity funds are unlikely to invest in any other structure. This

is because LLPs would require them to become partners in the

business, while an OPC can have only one shareholder.

Better Debt-raising Capacity: A private limited company has more options for taking on debt than

LLPs. Not only are bank loans easy to obtain (relative to OPCs

and LLPs), the option of issuing debentures and convertible

debentures are available to it.

More Credibility: The private limited company structure lends credibility to the business, on account

of the compliances that are necessary from the very

beginning. On the other hand, several compliances for an LLP,

such as appointment of an auditor, kick in only after its

turnover crosses a certain amount, while many are not

required at all.



A private limited company takes up to 25 days to incorporate,

depending on whether you have your documents in order, the

workload of the MCA and much else. You will be informed of

the various scanned documents you would need to provide

over the course of the process by our representatives.

DSC ApplicationAll the proposed directors in the company need a

Digital Signature Certicate (DSC), which is necessary for ling

forms at the next stage. You will only need to provide a few

scanned documents and details; our representatives will

ensure the forms are correctly lled.

Time to Complete: 1 to 3 days

1

2 Final IncorporationAs soon as weve the DSC, we will ask you for the

unique name you wish to give your company (we can help you

nd the right combination). We will also require some

information, signatures and scanned documents regarding

the proposed company and its directors to complete the

necessary submissions, including INC-29 and the

Memorandum and Articles of Association. At this stage, you

will also need to pay government fees for form ling and

stamp duty. You will receive the Certicate of Incorporation,

Permanent Account Number and Tax Account Number, as well

as ESIC registration by the end of this process.

Time to Complete: 5 to 15 working days

Procedure


FAQS

12

Q: Do I need to be physically present during this process?A: No, as all documents are led electronically, you

would not need to be physically present at all. You

would need to send us scanned copies of all the

required documents.

Q: How many directors and shareholders are permissible?A: A minimum of two and maximum of 15 directors.

There can be anywhere from two to 50 shareholders.

Q: What documents are required to complete the process?A: All directors must provide identity and address

proof, as well as a copy of the PAN Card (for Indian

Nationals) and Passport (for foreign nationals).

No-Objection Certicate must be submitted by the

owner of the registered oce premises.

Q: What is a DSC?A: The DSC is an instrument issued by certifying

authorities (TCS and n-Code are two of them) by which

you can sign electonic documents. As all documents

needed are electronic, partners need a DSC.

Q: Does a private limited company have continuous existence?A: Yes, so long as the annual compliances are met, the

private limited company will continue to exist. If you

do not comply with the requirements, it will go

dormant, until it is struck o the register altogether.

Q: How do I pick a name for my company?A: You need to rst ensure that your name has not

already been taken. This can be done by checking the

MCA website. However, if you're going to register the

brand name, also check if it has already been

trademarked. While framing your name, ensure that it

has a unique component that you coin and a

descriptive one that species the business youre in.

13

Limited Liability Partnership (LLP), introduced only in 2008, has

quickly become a popular legal structure for businesses. Its main

improvement over the General Partnership is that, as the name

indicates, it limits the liabilities of its partners to their contribu-

tions to the business and also oers each partner protection from

the negligence, misdeeds or incompetence of the other partners.

The LLP is also cheaper to incorporate than a private limited com-

pany, requires fewer compliances and can be a smart choice from

a tax perspective. However, if you're looking to raise venture capi-

tal or attract talent with employee stock options, private limited

is the way to go as LLPs cannot easily accommodate it.

This is why they are most popular with professional services rms

(web designers or architects, for example) that require no equity

funding. That said, it is not entirely uncommon for start-up found-

ers to rst register an LLP and convert it to a private limited com-

pany immediately before funding is raised.

LIMITED LIABILITY PARTNERSHIP



Advantages

Limited Liability: Businesses often need to borrow money. In a General Partnership, partners are

personally liable for all this debt. So if it cannot be repaid by

the business, the partners would have to sell their personal

possessions to do so. In an LLP, only the amount invested in

starting the business would be lost; all personal property

would be safe.

Relatively Cheap: If you're bootstrapping, you may be interested in knowing that an LLP has no

authorised capital (minimum of Rs. 1 lakh for a private limited

company), signicantly lowering the cost of registration.

Reduced Compliance: An LLP only requires audited annual returns to be led if it has a turnover

of greater than Rs. 40 lakh or capital contribution of over Rs.

25 lakh. It also needs to communicate fewer business

transactions and structural changes than a private limited

company.

Tax Advantages: There are some important advantages over the private limited company. For

example, Dividend Distribution Tax and tax surcharge don't

apply. Loans to partners are also not taxable as income.

CHEAP

1 2

3 4

5 6



ProcedureThe LLP incorporation procedure takes 20 to 35 days to

complete, depending on whether you have your documents

in order and the workload of the Ministry of Corporate Aairs

(MCA). You will be informed of the various scanned

documents you would need to provide.

DSC & DPIN ApplicationsAll the proposed partners need a Digital Signature

Certicate (DSC), which is necessary to get them a Digital

Partner Identication Number (DPIN). You will only need to

provide a handful of scanned documents; our representatives

will ensure the forms are correctly lled.

Time Required: 4 to 6 days

1

2

3

4

LLP RegistrationDuring the nal process, you would need to submit

various documents relating to all the partners in the business

and a No-Objection Certicate from the property's owner. We

will prepare all of the forms and submit them to the MCA,

which will take up to 15 days to verify them. All you need to do

is provide us with the information, signatures and scanned

documents relating to the LLP and its partners.

Time Required: 5 to 15 working days

PAN & TAN ApplicationsEvery company needs a registered Permanent

Account Number (PAN) and Tax Account Number

(TAN). We will make the application online ourselves, but you

will need to courier hard copies of the required documents

yourself. Both will be couriered to the your registered oce

address in 7 working days.

Time to Complete: 7 working days

LLP Name ApprovalThe unique name you wish to give your LLP should

be available and pass the naming guidelines provided by the

MCA. Our experienced ocers will give you all the help you

need in nding the right combination.

Time Required: 2 to 7 working days


16

FAQSQ: Do I need to be present in person during this process?A: No, as all documents are led electronically, you

would not need to do so at all.

Q: How many partners are permissible?A: There is no maximum number, but you, of course,

need a minimum of 2 to form the partnership.

Q: Can a foreign national be a partner?A: So long as one of the partners is an Indian citizen,

others can be foreign nationals.

Q: What is DSC and DPIN?A: The DSC is an instrument issued by certifying

authorities by which you can sign electonic

documents. The DPIN is a unique identication

number for an existing partner or a person intending

to become one. A partner can have only one DPIN.

Q: Does an LLP have continuous existence?A: Yes, so long as the annual compliances are met, the

LLP will continue to exist. If you do not comply with

the requirements.

Q: How do I pick a name for my LLP?A: You need to rst ensure that your name has not


MCA website. If you are disappointed that a preferred

name is taken, do remember that the name of your

concern doesn't have to be your brand name.

However, if you're going to register the brand name,

also check if it has already been trademarked. While

framing your name, please ensure that it has a unique

component that you coin and a descriptive

component that species the business youre in.


The One Person Company (OPC) constitution was recently

introduced as a strong improvement over the sole

proprietorship. It gives a single promoter full control over the

company while limiting his/her liability to contributions to the

business. This person will be the only director and shareholder

(there is a nominee director, but with no power until the

original director is incapable of entering into contract). So

there's no chance of raising equity funding or oering

employee stock options. Furthermore, if an OPC hits a

turnover of over Rs. 2 crore or has a paid-up capital of over Rs.

50 lakh, it must be turned into a private or public limited

company within 6 months.

17Business Registration Guidebook

ONE PERSON COMPANY


Advantages

Limited Liability: Businesses often need to borrow money. In structures such as the Sole Proprietorship,

proprietors are personally liable for all this debt. So if it cannot

be repaid by the business, the proprietor would have to sell

his/her car, house or jewellery to do so. In an OPC, only the

amount invested in starting the business would be lost; all

personal property would be safe.

Continuous Existence: If a promoter were to operate as a Sole Proprietorship, rather than an OPC, the business

would come to an end on his/her death. As an OPC

has a separate legal identity, it would pass on to the nominee

director and, therefore, continue to exist

Fewer Compliances: An OPC does not need to le audited statement of accounts with the MCA and as

few as three compliance-related forms to le on an annual

basis.



The OPC procedure takes up to 25 days to complete. You will

be informed of the various scanned documents you would

need to provide over the course of the process by our

representatives. Here is a snapshot of the process:

DSC ApplicationThe proposed director needs a Digital Signature

Certicate (DSC), which is necessary for ling forms at the next

stage. You will only need to provide a few scanned documents

and details; our representatives will ensure the forms are

correctly lled.

Time to Complete: 1 to 3 days

1

Final IncorporationAs soon as weve the DSC, we will ask you for the

unique name you wish to give your company (we can help you

nd the right combination). We will also require some

information, signatures and scanned documents regarding

the proposed company and its directors to complete the

necessary submissions, including INC-29 and the

Memorandum and Articles of Association. At this stage, you

will also need to pay government fees for form ling and

stamp duty. You will receive the Certicate of Incorporation,

Permanent Account Number and Tax Account Number, as well

as ESIC registration by the end of this process.


Procedure2


Q: Do I need to be physically present during this process?A: No, as all documents are led electronically, you

would not need to be physically present at all. You

would need to send us scanned copies of all the

required documents.

Q: How many directors and shareholders are permissible?A: A minimum of two and maximum of 15 directors.

There can be anywhere from two to 50 shareholders.

Q: What documents are required to complete the process?A: All directors must provide identity and address

proof, as well as a copy of the PAN Card (for Indian

Nationals) and Passport (for foreign nationals).

No-Objection Certicate must be submitted by the

owner of the registered oce premises.

FAQSQ: Do I need to be present in person during this process?A: No, as all documents are led electronically, you

would not need to do so at all. You would need to send

us scanned copies of all the required documents. We

may, however, ask for hard copies of some documents,

too, with the necessary attestations.

Q: Will I get a printed incorporation certicate from the Government?A: No, the procedure has been completely digital these

days and the Government does not issue a printed

copy. They will send you a soft copy which you can

print out if you wish.

Q: Does an OPC have continuous existence?A: Yes, so long as the annual compliances are met, the

OPC will continue to exist. If you do not comply with

the requirements, the OPC will go dormant, until it is

struck o the register altogether.

Q: How do I pick a name for my company?A: You need to rst ensure that your name has not


MCA website. Do note that the name of your concern

doesn't have to be your brand name. However, if you're

going to register the brand name, also check if it has

already been trademarked. While framing your name,

please ensure that it has a unique component that you

coin and a descriptive component that species the

business youre in.

20

A General Partnership is a business structure in which two or

more individuals manage and operate a business in

accordance with the terms and objectives set out in the

Partnership Deed. This structure is thought to have lost its

relevance since the introduction of the LLP because its

partners have unlimited liability, which means they are

personally liable for the debts of the business. However, low

costs, ease of setting up and minimal compliance requirement

make it a sensible option for some, such as home businesses

that are unlikely to take on any debt. Registration is optional

for General Partnerships.


GENERAL PARTNERSHIP


Advantages

Minimal Compliance: General Partnerships do not need to appoint an auditor or, if unregistered, even

le annual accounts with the registrar. Annual compliances are

also fewer as compared to an LLP. General Partnerships do

need to le Income Taxes and, depending on turnover, service

and sales tax.

Easy to Start: It can be started with just an unregistered Partnership Deed in 2 to 4 days at Rs.

1,999; registration is, however, a wise choice. It would enable

you to le suits in court against another rm or partners in the

rm for the enforcement of rights arising from a contract or

right given by the Partnership Act.

Relatively Inexpensive: A General Partnership is cheaper to start than an LLP and even over the

long-term, thanks to the minimal compliance requirements, is

inexpensive. You would not need to hire an auditor, for

example. This is why, despite its severe shortcoming

(unlimited liability), home businesses may opt for it.



The General Partnership process is straightforward and, if

you're prompt with your submissions, can be completed in

ve days. This is, however, dependent on a few things, such as

whether or not you want your business registered and

availability of stamp paper.

Partnership Deed DraftingWe will collect all the information regarding your

business and its partners. The information will be used by our

lawyers to draft a partnership deed covering the various

aspects of the business on stamp paper (charged as per

actuals).


1

2

3PAN & TAN ApplicationsEvery partnership, registered or unregistered, needs

a Permanent Account Number (PAN) and Tax Account Number

(TAN). We will make the application online ourselves, but you

will need to courier hard copies of the required documents

yourself. You will receive the PAN and TAN at the address

mentioned in the deed.


Partnership Deed Registration (Optional)We will appoint an aliate to take you through the

process. All the partners would need to go to the registrar's

oce and bring along a passport-sized photograph and

identity and address proofs.

Time to Complete: 1 working day

Procedure


FAQSQ: Do I need to be present in person during this process?A: Drafting is done online, but you and the other

partners need to be present at the Registrar's Oce if

you wish to register the Partnership Deed.

Q: How many partners are permissible in an LLP?A: A General Partnership permits a minimum of two

and maximum of 20 partners.

Q: Can a foreign national be a partner?A: No, partners must be Indian citizens residing in

India.

Q: Is there a minimum amount of capital required?A: Not at all. You can even start with Rs. 100, if you

wish.

Q: Can a General Partnership have an investor?A: Yes, but only so long as he is an Indian citizen

residing in India. It may be done without any approval.

Such an investor can even be classied as a limited

partner, which would excuse him/her from

participating in business activities, thereby limiting his

liability.

Q: Can I convert my Partnership into an LLP or Private Limited Company?A: Yes, you can, but this is a tedious and expensive

procedure. It may be better to close the partnership

altogether and then start afresh as an LLP or Private

Limited Company.

24

A sole proprietorship is a business that is owned and managed

by a single person. You could have one up and running within

10 days, which makes it very popular among the unorganised

sector, particularly small traders and merchants. There is no

such thing as registration; proprietorships are recognised by

other registrations, such as a service or sales tax registration.

As you would imagine with a business thats so easy to set up,

though, its shortcomings are severe: the liability of the

proprietor is unlimited and it does not have a continuous

existence. For these reasons, it should only be considered by

small merchants and traders.


SOLE PROPRIETORSHIP


Advantages

Minimal Compliance: Sole Proprietorships are only recognised via their government and tax registrations,

so the extent of their compliance is limited to the annual ling

of their service, professional or sales taxes.

Easy to Start: A sole proprietorship could take as few as seven days if all you need is a Service Tax Registration,

but this would stretch to 30 days if you need Sales Tax

Registration. Either way, the process is uncomplicated.

PAN card and identity and address proofs are usually enough

to get this done.

Relatively Inexpensive: A Sole Proprietorship is inexpensive as compared to a One Person Company

and, thanks to the minimal compliance requirements, is

inexpensive even over the long-term. You would not need to

hire an auditor, for example. This is why, despite its severe

shortcoming (unlimited liability), small merchants and traders

opt for it.



Proprietorship is recognised through one or more government

registrations. Our representatives will advise you about the

ones you will need based on the business you're in, and

inform you of the documents you would need to provide in

each case. Here is a snapshot of the process:

1

2

3

Begin ProcedureOnce you've decided what you want, we'll ask you for

the documents we need to get started. In most cases, you

would rst need to provide address and identity proof as well

as a scanned copy of a passport-sized photograph. Some

registrations (Sales Tax, for example) involve an inspection by

the concerned government agency. We will assist you

throughout the process until you receive the required

registration.

Time to Complete: Depends on selected service

Get a TANA proprietor would need a Tax Account Number

(TAN) if he is going to pay salaries and rent. We will make the

application online ourselves, but you will need to courier hard

copies of the required documents yourself to the government

oce. You will receive the TAN at the registered address within

7 working days.


Select RegistrationWe will help you decide what registration you need,

whether service tax, sales tax, import/export code, MSME

registration or Shops and Establishments registration.

Time to Complete: Less than a day

Procedure


FAQSQ: Who can be a proprietor?A: Only Indian citizens residing in India can be sole

proprietors.

Q: Can I open a bank account specically for the proprietorship?A: Yes, you can. To do so, you would need to provide

two of the recognised government registrations, such

as sales or service tax registration, MSME registration

and Shops & Establishments Act registration. PAN card

would also be necessary.

Q: Will I receive a certicate of incorporation?A: Sole proprietorships are never incorporated. They

are instead recognised by the government via various

registrations. Therefore, you would not receive such a

certicate.

Q: Can I convert my proprietorship to a private limited company or LLP?A: No, you can't. You would have to close the

proprietorship altogether and then start afresh as a

One-Person Company, LLP or Private Limited

Company.

28

Business Registration Guidebook

Documents

Transcript of Business Registration Guidebook