How to Choose the Right Legal Structure of your Business

Narendra Kumar

31 Jan, 2020

How to Choose the Right Legal Structure of your Business?

Starting and managing a business may be painful for startups if you are not aware of the right legal structure of your business and also compliance is necessary to know. In setting up a business, the 1^st milestone is to choose the right legal structure for your business. In this article, we will discuss “how to choose the right legal structure for the business in India?”

18 FAQ on the Legal Structure of your Business 

1. Is It Mandatory to Register a Company? What should you know about Business Registration?

Answer – The business registration is mandatory whether you are planning to start a small business or large scale business. If you are planning to start a small business simply go for Proprietorship apply for GST Registration or if you are willing to do business under partnership then simply go for partnership registration & GST Registration if you expect annual turnover more than Rs. 20 lac.

If you are willing to have a corporate structure then it is recommended to register your business as a Private limited company. In private limited, it is easy to raise funds from Angel investor / Venture capitalist. Even you can hire better resource in a private limited company. Private limited is the best business structure in India.  Other alternatives of the private limited company are Limited liability partnership (LLP) registration. However, in LLP structure of the business, you will not be able to attract venture funds/ Angel investments.

Benefits of Private Limited Company Registration in India –

1. Suitable for all type of business like trading, Manufacturing or wholesale or marketing or retail or E-commerce.
2. Your personal assets will be protected and cannot be attached to the company as in the case of proprietorship or Partnership you have unlimited liabilities which means a loss in business will be your personal loss. Hence business liabilities are your personal liabilities.
3. Transferable ownership – In Private limited you can easily sell your ownership to the investor and make money from company valuations.
4. Trust of Employees, Customers, and Vendors – if you are planning to build a team then it’s important to have a private limited company as young professionals prefer to join a corporate legal structure (Private limited company) and similar vendor has confidence about your business before giving you credits and customer trusts the Privately limited legal structure before giving advance.
5. Ease of investments – only in Private limited company, Venture capitalist / Angel investors prefers to invest

What is Company Registration Procedure in India?

Company Registration in India is 100% online process hence no needs to visit any government office you just need to provide Aadhaar, pan card & Election ID card along with bank statements or any utility bills of two people to form a company. Team Enterslice we will handle your end to end process. From Name approval of the company, it will take 5-7 working days to secure a certificate of registration from the registrar of companies.

4. How many directors / Members are Required to Register a Private Limited Company?

We would need minimum 2 directors to form a private limited company and one person in case of OPC (One person company) the same person can be directors as well as members / Shareholders in the company. The maximum members in a company can be 200 and maximum directors 15.

6. Who can be appointed as a director of a company?

The director should have attained the age of 18 years; the directors can be both Indian citizens as well as foreigners.

7. What Is The minimum capital required to register a Private Limited Company?

There is no minimum capital requirement hence it may be Rs. 100 to any amount. However, in normal culture usually, for company registration minimum capital we keep 1 lac to 10 lac as Authorized share capital.

8. What Is Authorized Capital Fee?

Authorize share capital is the maximum amount of Capital that is available to be issued / available for allotment in the form of equity share capital or Preference share capital.

Up to 10 lac authorize share capital government fees are same Approximate Rs. 1000 except company registering in Punjab, Kerala, and MP. In Kerala, Punjab, and MP there is an additional Rs. 8000 fees payable to the government. Hence, Package for company registration in these states will increase to Rs. 19000 from normal Rs. 11000.

9. How Long Will It Take To register a Private Limited Company?

If your company name is unique, you can finish company registration in 7-10 days.

The timeline is based on time documents collection.

10. How Long Is the Registration of The Company Valid?

Company registration is valid for lifetime subjectively you file your annual returns on time before its due date 30/09 of following financial year.

11. Can Foreign Nationals/NRI be appointed a director in the company

Yes. Foreign national can form a company in India but mandatorily he should have minimum one Indian director (Non-Executive or Executive) usually the consultant who is handling your company registration can provide the services for non-executive directors.

12. What is the registered office of the company?

As per the companies act, every company proposed to be registered in India should have its official address to receive various correspondence like notices forms a government, correspondence from bank I.e.

The Stamp duty payable on authorized share capital shall be calculated based on the registered office of the company. The registered office may your residence (Own and rented) or a commercial space

13. What is included in the company registration package?

Usually, company registration services offered by CA/CS includes the following:

1. 2 DIN and 2 DSC
2. Government fees as prescribed
3. Name Approval Government fees
4. AOA & MOA
5. PAN & TAN

14. What are the Legal Registrations Requirement for Sale Goods or Services in India?

In order to sell goods or services, it is recommended to apply for GST Registration and GST Registration can be obtained after bank /ac is opened of the newly incorporated company. However, GST Registration is only optional up to annual turnover Rs. 20 Lac in a financial year. But in the interest of business, it is recommended to apply for GST Registration. After GST Registration, you can take inputs on all goods or services you purchase from the market for your business use like computers, furniture’s e.tc. you can use your input tax and can utilize when you are in business.  After GST Registration, the next step is to start sell of goods and services, then you need to file GST Returns on a monthly or quarterly basis depending upon the turnover of the entity.

15. Trademark registration is critical, we aware of it.

After Registration of a private limited company, your next milestone was bank account opening then GST Registration before you start the purchase of assets and then you start selling of goods or services. The most critical things which usually startups miss is to apply for trademark registration. When you have a plan to set-up business and invest your hard-earned money it is necessary to go for trademark registration in a minimum 2 to 4 class. Need to carefully study the trademark class before filling application for TM. Always try to hire an agency who invest time in research before filling of the trademark application.

16. What will be the annual compliance cost of a private limited company?

For a business with a turnover of less than 1 cr in a financial year, the ROC Fees shall be Rs. 3000 to 5000 in a year. Audit fees may be in the range of Rs. 25000 to 100,000 depending upon the experience of the statutory auditor. GST returns & Compliance may cost you around Rs. 20,000 in a year. In total, the annual maintenance cost will be Rs. 50000 to 80,000 p.a.

17. Do I need to hire an Accountant for my business?

Up to Rs. 1 cr turnover it is recommended to use quick books 100% automated Accounting software. Its cloud base accounting software, you can authorize your CA to view the statements and you can operate it without the much knowledge of accounting. Simply watch Quick books YouTube channel, you will learn everything in just 3-4 days. Quick books offer a high level of reporting, MIS, Dashboard, Real-time P &L, Balance sheet, bank statement too updated on a real-time basis.

18. What is the compliance due dates for the private limited company?

      Auditor Appointment – The statutory auditors of the company must be appointed within 30 days from registration of the company

      GST Returns – GST returns you can file on a monthly basis or on a quarterly basis if your annual turnover is less than 1.5 cr.

      Income tax returns – As a business, you need to calculate your profit/loss for the financial year ending 31/03 and mandatorily income tax returns of your company must be filled before 30/09 of following financial years.

      ROC Returns – ROC Returns is mandatory it should be submitted online by or before 30/09 of following financial year. In ROC returns you have to submit audited financial statements, Auditors report, Director’s report and updated shareholding pattern of the company

We suggest not to wait for a last-minute rush, hire a reputed CA Firm / Consultancy firm who will take care of your legal structure and compliance issues and focus on your business.

19. How do I register for Startup India program –

A company who is registered in India is eligible for registration under the startup India program

1. Maximum age of a company should be less than 7 years
2. A private limited company or registered as a partnership firm or a limited liability partnership Can apply under the startup India program, but preference is a private limited company.
3. The Annual turnover must be less than 25 Cr, hence good for a startup
4. The Startup business model must be innovative, unique or which helps the community at large and it must be a scalable business model with a high potential of employment generation.
5. An entity shall cease to be a Startup in case of completion of 7 years or 25 Cr Annual turnovers whichever is earlier.
6. Enjoy 7 years’ income tax exception on annual turnover less than Rs. 25 cr.