Now that you have a Business idea and finally you want to put your money and efforts into making that idea a reality, you should be clear in your mind what type of Business entity you need to create.
Choosing the right Business structure will allow your enterprise to work efficiently and is very important as your Income Tax Returns depends on it. Every Business structure has its own compliance, benefits, drawbacks and legal obligations which needs to be well considered before deciding the apt Business structure for your Firm.
Let us help you in making a sound decision by throwing some light on questions every entrepreneur should have in mind while deciding upon a Business structure.
1) Are you a single owner or will have Partners ?
If you alone are going to invest completely in the Business and not planning to bring investments from other people sole proprietorship or One Person Company will be suitable for you otherwise you Private Limited Company or Limited Liability Partnership will suit you the best.
2) How much you are going to invest?
If you are going to invest less initially, it is advisable to go for Sole proprietorship but if you are confident that you will recover setup and other costs you can go with One Person Company, LLP or PLC.
3) How much risks and liability you want in the firm?
In Sole proprietorship and partnership you will have unlimited liability and in case of default of loan entire money will be recovered from you or from all partners. Whereas Companies and LLPs have limited liability clause and liability is restricted to the amount of contribution made by them or value of shares each member holds.
A.) For Sole- Proprietorship:
Sole Proprietorship can be registered by following three methods
If your turnover is above 20 Lakhs, You should opt for taking GST Registration as it is the most widely accepted form of identity for sole proprietorship concern. However if your Turnover is less than 20 Lakhs we recommend you to opt for registering under shops and establishment act or by getting an Udyog Aadhar.
B.) For PLC and LLP:
Here are the 4 thing you will need to acquire:
1. Digital Signature Certificate
Digital Signature Certificates (DSC) are digital equivalent of physical or paper certificates like driver’s license, passport etc. DSC can be presented electronically to prove one’s identity, to access information or services on the Internet or to sign certain documents digitally.
You can find a list of Certifying Authority who have been granted a license to issue Digital Signature Certificate under Section 24 of Indian IT Act 2000 on MCA portal
You will be required to submit a photograph, self-attested ID proof and address proof and a cheque for charges of Certifying Authority.
2. Director Identification Number
Director Identification Number (DIN) is a 8 Digit unique identification number which is allotted by Central Government to the Director of a company. An Individual can have only one DIN although he can be director of more than one company. It has a lifetime validity
You can apply for DIN by downloading Company form DIR-3 at www.mca.gov.in by going to E-filling section. Documents needed along with the filled form is photographs, Identity and address proof and DSC, which should be verified by CEO/CFO of the company.
3. Registration on MCA portal
You will have to submit 3-6 names for approval to MCA. Ministry will check if the name is available and meets the naming guidelines.
Apply to the concerned RoC to ascertain the availability of name in eForm1 A by logging in to the portal. A fee of Rs. 500/- has to be paid alongside and the digital signature of the applicant proposing the company has to be attached in the form. If proposed name is not available, the user has to apply for a fresh name on the same application.
4. Prepare Company Documents
Two primary documents have to be drafted before you incorporate a Company i.e Memorandum of Association (MoA) and Articles of Association (AoA) which are like Constitution of the company and provides rules, authorities and character of the firm. Its is advisable to hire some expert for drafting these Documents.
MCA has introduced Simplified Performa for Incorporating Company electronically (SPICe). The SPICe-INC-32 form can be submitted electronically with eMoA and eAoA.
SPICe can also be used for applying DIN ,reserve a Company Name , Incorporation of a Company and for allotment of Tax Deduction Account Number (TAN) and Permanent Account Number (PAN).You will also require Goods and Service Tax (GST) Number for doing business in India and take advantage of the provisions of the Tax.