How to incorporate a company or start a business in India
If you are looking for information on how to start a company or a business in India, read further. In this post, I will discuss various formalities involved in registering and incorporating a business in India.
Many people interchangeably use the terms "company", "business", "firm" etc. But when it comes to incorporating, each of these means different entities. In general, when someone want to start a business in India, they ask "how to start a company in India". But the "starting a company" means something more than just "starting a business".
It is a common misunderstanding that any business can be called a Company. A business can be called a Company in India only if it is incorporated according to the 1956 Companies Act in India.
"Company" is one of different types of business entities in India.
There are several types of business entities in India:
2. Partnership Firm
3. Limited Liability Partnership
Most people who want to start a new business do not want to start it as a company. Rather, they want to incorporate their business as a Proprietorship, Partnership firm or a Limited Liability Partnership, none of which can be called as a company. You may read about the different types of business entities in India.
Advantages of LLP over Partnership firms and companies
LLPs have many advantages over Partnership forms and Companies. One of the biggest advantages is, it is less complex than running a company, gives most benefits of companies, have more formal existence like a company and protect the personal assets of partners from the business liabilities. You can read more about the advatanges of LLP over partnership firms in India.
How to incorporate a business or company in India
Step 1: Identify the business entity type
The first step in incorporating a business in India is, choose what kind of business entity you want to register. You need to choose from proprietorship, Partnership firm, LLP or Company. If you are running a local business with local clients, you may go for a Proprietorship or Partnership firm. But be careful that the partners are personally liable for any business liabilities. If you are looking for a big business with a lot of clients and expect investments from capital investors etc, you may want to register it as a Company. For most other cases, LLP is the recommended business entity type.
Step 2: Apply PAN card for partners
In most cases, all partners are required to have a PAN card before they can become a partner of an LLP or Company. There are few exceptions for foreign nationals and few other cases. It is a good idea to have a PAN card ready for you since it is almost impossible to do various bank transactions and other business without a PAN card.
Step 3: Choose a name for your business
If you are incorporating an LLP or a Company, you must reserve a name for your business and should get approval from the "Ministry of Corporate Affairs". There are several guidelines for choosing a name for your business. One important criterion is, you cannot choose the name of an existing business. Learn more about check availability of name for LLP or Company in India.
Step 4: Choose a registered office for the business
Any registered business should have a registered office in India. The registered office can be same as the residence of one of the partners or a rental home. In the case of residential address, you will need to produce a No Objection letter from the resident of the house.
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