9 Types of legal entities in India 2022

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    Legal entities in india

    Companies or Legal Entities You Can Establish in India

    India has been designated as one of the world’s best developing main economies, with the service division playing a key role. It is at the center of a period of notable economic freedom, and it is promoting Foreign Direct Investment (FDI) by increasing admission to its vast and diversified marketplace. For these reasons, many firms are now looking to increase by registering a company in India. Foreign investors can set up a variety of companies in India. Investors can decide the composition for their firm based on its principle, aims and goals, initial investment, and length (short term/long term).

    Why is choosing the type of Indian Company Important?

    Choosing your company type is important to ensure that your business operates to its full capacity in a manner that minimizes wastage of resources. The right company structure will ensure that you are free to scale your business when required.

    Certain company types offer you better advantages in terms of tax and compliance. Once you’ve set up your company, it may prove difficult to convert from one type to another later.

     You may have to wait for the next financial year, in which case, you will lose out on savings and tax deductions. We recommend consulting a professional company formation agency to find out which company-type suits your industry and your situation best.

    Types of Legal Entities in India

    Types-of-Legal-Entities-in-India
    • Public limited company
    • Private limited company
    • Partnership firm
    • Joint venture companies
    • One person company
    • Sole proprietorship
    • Branch office
    • Non-government organization (NGO)
    • Limited Liability Partnership (LLP)

    Lets understand all of them in step-by-step.

    Public Limited Company in India

    Any company that is not a private limited company is by definition, a public limited company under Indian law. This definition includes subsidiaries of foreign public companies. Most foreign businesses in India tend to start as private limited companies. When the opportunity to expand opens up, you can convert your private limited company to a public company depending upon the FDI cap fixed within your sector.

    What are the minimum requirements to set up a public limited company for foreign investors in India? You must have at least 7 Members and 3 Directors, one of whom must be an Indian resident. You must also have a paid-up capital of at least INR 500,000 (approx. USD 6690).

    A public company raises money from the public and hence, there are considerably more stringent accounting, taxation, and audit requirements. Consult your accountant to find out whether a public limited company is the right company type for you.

    Private limited company in India

    In India, a Private Limited Company is a privately held small company firm that is regarded as an independent legal entity upon the organization. It might have as little as one stakeholder or 50. 

    Private Limited Companies, unlike Public Limited Companies, cannot candidly exchange their shares. Any of them might have as few as 2 and as many as 15 directors.

    Expert Note: Note that Private Limited Companies are the most popular type of business entity in India. One of the reasons for this is that legal barriers to entry are lower and compliances fewer. But more importantly, a PLC structure gives you the flexibility to maneuver strategically while keeping your financial confidentiality under control.

    There are also a number of tax exemptions and incentives that the government provides once you incorporate your PLC. Prime examples are India’s semi-conductor manufacturing policy, Special Economic Zones (SEZs), etc. If you’ve decided to enter the Indian market you will need some handholding to show proof of your eligibility for these exemptions and incentives. Check with a Company Formation expert to discuss your specific case in detail.

    A partnership firm in India

    A partnership is distinct as “the relationship between persons who have agreed to share the earnings of the company carried on by them or any of them acting on their behalf.”In India, a Partnership Firm is a structure of a Joint-Venture Company. An association firm’s owners are documented as partners independently and as commerce jointly. A partnership business requires a minimum of two persons to get in progress. The maximum number of collaborators is 10. The partners divide earnings in any equally agreed-upon ratio and have limitless liability. It is not compulsory to list a partnership firm.

    Joint-venture Company in India

    A Joint Venture (JV), as the name implies is a new corporate organization shaped by a partnership of foreign and Indian investors, in which the partners split profits, losses, decision-making duties, and in-service expenditures. The profit of joint ventures includes the foreign company’s aptitude to use the Indian partner’s well-established contact network, sharing, and marketing channels, as well as the obtainable financial capital. A JV also enables investors to take the risks allied with the new business together while minimizing their interaction through liability sharing.

    One-person company in India

    One-Person Business (OPC) is a new type of company that has been formed in India since 2013. Incorporating an OPC is only official for Indian inhabitants. A foreigner can not form an OPC. It can have a single proprietor. It motivated individuals to begin their businesses. This is a type of Private Corporation that may function as a separate legal entity. The owner’s liability is limited.

    Sole Proprietorship in India

    In India, a sole proprietorship is a kind of Business Company in which the only person manages the entire business organization. The person is the only recipient of all earnings and the solitary bearer of the total company losses. The owner’s responsibility is unlimited.

    A Sole Proprietorship business is suitable if the market is limited and localized, and where customers value personal attention. This form of corporation is appropriate when the needed capital is self-effacing, and the risk involved is low. Because proprietorship does not have a legal presence, there are fewer lawful necessities.

    Branch office in India

    Foreign firms with developing and trade operations in India can set up Branch Offices. Branch Offices may not perform developed processes on their own but subcontract them to an Indian company.

    Expert Note: Foreign companies that decide to study the Indian market before diving in can allocate investments in market research without making a long-term commitment through Representative Offices.

    The Reserve Bank of India must endorse the branch office before it starts operations (RBI) within the country. A Branch Office cannot involve itself in any profitable activity.

    The following are the kinds of Branch Offices you can set up in India as a foreign company.

    • a Liaison Office (or a Representative Office): to collect information, promote imports and exports, or facilitate technical or financial collaboration.
    • a Branch Office: to provide professional or consultancy services, perform research, develop IT products and services for the parent company, act as buying/selling agent, etc.
    • a Project Office: to execute specific projects in India.

    A non-governmental organization in India

    A Non-Governmental Organization (NGO) or Nonprofit Company is a citizen-led organization that acts separately from the government, usually to further some social cause. These companies are not for revenue and look to promote a cause or create initiatives for the good of society.

    Open a company in India with ODINT consulting. We can help you set up your business in India. We know that starting a business and registering a corporation here may be tricky because it requires permission from several confined authorities and bureaus. It also causes information on the country’s communal, cultural, educational, and legal aspects.

    Looking for an Expert Guidance?

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      Limited Liability Partnership (LLP)

      This company form is relatively simpler to set up than a Public Limited Company, requiring at least 2 partners and 2 designated partners, one of whom must be a resident Indian. However, your liability is limited by the number of shares in the LLP you own.

      Factors to be considered before choosing company type in India

      You should consider the following factors before deciding on the best company type for you:

      • Nature & range of objectives set for your business 
      • Degree of control desired (LLP, Branch Office, Limited Company) 
      • Capital needed and available sources of funding (LLPs are a good option if you desire more control. However, Limited companies are trusted by investors, commercial lenders, and banks because of stringent disclosure requirements and compliances)
      • How much liability are you willing to bear (Ask yourself if your industry is susceptible to lawsuits. If the answer is YES, consider forming a Limited company to protect your personal assets)
      • LLPs do not require regular meeting records except for the minute book. 
      • Limited companies require quarterly meetings of the Board of Directors and an annual shareholder meeting to be held. The latter requires comprehensive meet records to be maintained and published every time.
      • How many audits, bookkeeping, or administrative overhead do you want to handle taxes: Have a hard look at the tax rates for the current fiscal year for LLPs, Limited companies, and Branch Offices. Eligible companies could end up paying different levels Minimum Alternate Tax, Dividend Distribution Tax, Advance Tax, TDS, and so on
      • Because rules keep changing from year to year, we recommend consulting our tax and audit expert to find out which structure will work best for you.

      FAQ’s

      The cost of registering your company in India is relatively low and is notified by the Ministry of Corporate Affairs (MCA) for each type of company from time to time. The actual amount could vary depending upon the number of Directors, Members, amount of paid-up capital, professional fees, etc.

      Most foreign businesses tend to incorporate a Private Limited Company to enjoy the maximum advantage of scale and limited liability while at the same time doing just enough to keep up with regulations and compliances. However, do consider tax exemptions and incentives for your sector before diving in.

      Registering your business in India as a company with the Registrar of Companies ensures that the risk you undertake in business is limited. It also formalizes your business model in a way that bankers, investors, and other institutional lenders can trust. The government can see that you have been maintaining accounts via audits and paying taxes in accordance with the law. The public has more reason to trust you because it in turn trusts the government. Finally, in the event of a dispute, you can easily refer to the Articles of Association or the Memorandum of Association, to determine the true legal position and settle things amicably.

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