The Start-Up India initiative, well-trusted by the Indian government, has been turning the entrepreneurial tides in the economy’s favor. The start-up ecosystem in our nation seems to be at the start of a highly lucrative boom cycle. With such good tidings in sight, there is a noticeable increase in the number of new companies getting registered across the nation. As important as the decision for people to start a new venture is another equally important factor for them to consider: choosing the right company structure for their business.
1) One Person Company (OPC) :
“One Person Company” is a new concept introduced by the Companies Act 2013, Section 2(62). As the name suggests, a one-person company is formed with only one person as its member. It enables a sole proprietor to carry on their work and still be part of the corporate framework. This works similarly to a private limited company with much less legal compliance. An Individual who is a resident of India can be the director. A nominee is appointed to continue the business in the event of the director’s death. A one-person company with an annual turnover of more than ₹ 2 Crores loses its eligibility to continue as a one-person company (OPC). Within 180 days, it should be converted into a private limited company with a minimum of two directors and shareholders.
Advantage– Tax holiday for the first 3 years under the Start-up India Campaign. Higher benefits on depreciation and no tax on dividend distribution.
2) Limited Liability Partnership (LLP) :
An LLP registration is a new corporate body that is just an extended version of a partnership firm. Like a company, an LLP stands as a separate entity apart from its partners. An LLP requires a minimum of 2 designated partners. Anyone who is a citizen of India and runs a business in accordance with the law can be registered as an LLP. No partner is liable for the independent misconduct of other partners. If liability arises due to the partner’s misconduct, it is unlimited. A statement of accounts should be filed on behalf of the LLP every year.
Advantage:– Receives tax benefits on depreciation.
3. Private Limited Company (PLC) :
A Private Limited Company Registration can be done with a minimum of two directors, and no minimum paid-up capital is required. Shareholders operate their business themselves, and a company can appoint directors. The main advantage of forming a private limited company is its liability, which is limited to the capital contributed to the company. Each individual is regarded as an employee of the company. The only disadvantage of a private limited company is that an IPO (Initial Public Offering cannot be made. Also, the company’s share transfer is restricted to a considerable extent. If the creditor loses money due to the director’s misconduct, then the director’s assets are liable to the company.
Advantage:– Tax holiday for the first 3 years under the Start-up India Campaign. Higher benefits on depreciation.
4) Public Limited Company (PLC) :
Being a Public Limited Company (PLC) is much more complex and is usually reserved for larger companies. To be called a PLC, a company must have, amongst other things, more than one director and a trading certificate from Companies House. PLCs can sell their shares on the stock market, allowing anyone to buy them. Whilst it is easier to raise money using this method, it also means that the company accounts are in the public domain. The company must also be audited and make certain information available to Companies House. Plus, PLCs can be bought out by other shareholders.
