Setting up a business in India:
Let’s understand the various options available to set up a business in India.
What are the various types of business organizations that can be formed in India?
- For an Individual – either a sole-proprietorship or a One Person Company (OPC)
- For two or more people – either a partnership firm, a private limited company, a limited liability partnership (LLPs)
Which is the best option for a foreign company to set up its venture in India?
A foreign company has two options, either set up a private limited company or a branch office. The regulation for setting up a private company is simpler and quicker compared to a branch office. So, it is advisable to set up a private Limited company
Whether a company requires any Indian shareholder or a director?
A company requires a minimum of 2 shareholders and 2 directors. Both the shareholders can be non-residents or foreigners or foreign companies. However, one of the directors should be a resident director (an Indian or otherwise) based out of India.
So, how can a foreign company get a local (resident) director?
Normally, foreign companies hold 100% equity (99 shares by parent company and 1 share by one of the shareholders) and make one the employees of India (mostly country head or Manager) as the director of the company.
If an Individual wants to start a business, which type of organization is suitable?
One can opt for sole-proprietorship concern.
Proprietary concern has a dual advantage
(a) the setting up process and cost are very nominal
(b) the annual compliance is significantly less.
This apart, it also enjoys tax advantage in terms of payment of service tax (quarterly payment instead of monthly payment), service tax on reverse charge in certain types of services, etc.
If husband and wife decide to start a business, which type of organization is suitable?
They can go for a partnership firm. Setting up a firm and its annual compliance is much simpler and cheaper when compared to a company. Government contracts, bank loans, MSME benefits, tax benefits (if any), etc., applicable to companies are also applicable to firms and proprietary concerns.
If two friends/ ex-colleagues decide to start a business, which type of organization is suitable?
They can look for setting up limited liability partnership firms (LLPs) or a private limited company.
Both these options take more time and cost when compared to firms. However, when two or more friends / colleagues join together to start a business, we normally suggest to go for Limited Liability Partnership (LLP) or companies.
Entry and exit of shareholders or directors will be easier in companies or LLPs when compared to firms.
Which is the best option?
There is no definite generic answer to this question. As we have mentioned above, based on the number of people, nature of the business, going by all the important advantages and disadvantages of each type of organization, one can chose a suitable option.
Find out different types of entity registration
- Proprietary Firm
- Partnership Firm
- Limited Liability Partnership Firm (LLP)
- Private Limited Company
- Branch Office of a Foreign Company
- Subsidiary of a Foreign Company
Find out what other registrations are required for Business Entity
- Obtaining PAN and TAN Registration
- Profession tax registration – Karnataka
- Registration under Shops and Establishment Act
- Service Tax registration
- Registration under Karnataka VAT
- Obtaining Import Export Code (IEC)
- Who has to register under Employee Provident Fund (EPF)
- Who has to register under Employee State Insurance (ESI)