TYPES OF BUSINESS

A business cannot run on its own motion. It requires detailed analysis of market, availability of labour, financial resources, a product/service and most important its demand and supply. This one face of the coin requires detailed study of the market before starting. Another face of the coin is the legal structure of the business entity which involves study on the type of business to be formed and way out to run safely and accurately in the market with minimum risk and maximum output. This aspect involves whole lot of laws, rules & regulations that have to be taken care of before setting up business in India. We follow well defined service plan supported by which in turn helps the business entrepreneurs, corporate houses, to understand different entry options available to them. Our bunch of services not only include business set up services but also post incorporation services such as maintenance of books of accounts, necessary post incorporation compliances as applicable to the business module adopted by the entrepreneur under Company Law, Foreign Exchange Management Act (FEMA) RBI Rules & Regulations, GST and under Indian Income Tax Act, 1961 etc. We intend to provide all corporate and legal services under one roof i.e, PCS. Any Business that aspires to start operations in India has several options for setup. Anyone can launch its business operations in several ways.

Within the above framework of constitution of an entity, a foreign investor or foreign Company intends to do business in India, can have following business setup.

• Subsidiary Company including wholly owned Subsidiary Company in the form of private limited or public limited company.
• Branch Office
• Liaison Office
• Project Office
• Joint Venture Company

 

Private Limited Company

A Private Limited Company is a Company that restricts the right to transfer its shares i.e. the shares of Private Limited Company are not freely transferable under the Companies Act, 2013.  It can have a maximum of 200 (Two Hundred) shareholders and it cannot invite public for subscription of its shares or debentures. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager/Officer of such a Company remains unlimited under certain circumstances. The minimum number of shareholders is 2 (Two). Setting up of business via this route is generally adopted by business concerns. Time to get registration and work permit approved is 1 month including opening of bank account and getting maximum number of licences as applicable to specific business sector. This time limit is exclusive of time spent for getting documentation, legalization of documents and signing and delivery part.

Public Limited Company

A Public Limited Company is a Company other than private limited company. In this case, there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager / Officer of such a Company remains unlimited under certain circumstances. The minimum number of directors is 3 and that shareholders is 7 (Seven). Shares of these companies must be in DEMAT / electronic form and are accordingly freely transferable.

Limited Liability Partnership (LLP)

A Limited Liability Partnership is similar to a general partnership, except that in the former, not all the members are fully liable for the debts of the business; the liability of a limited partner is only limited to the amount of one’s capital investment. It therefore can exhibit elements of partnerships and corporations. In a LLP, each partner is not responsible or liable for another partner's misconduct or negligence. Thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct. Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity. .– Click here  - Incorporation of LLP in India

Partnership Firm

Partnership is defined as a relation between two or more persons who have agreed to share the profit /loss of the business carried on by them or any of them acting for all. The owners of a partnership business are individually known as "partner" and collectively as a "firm". Partnership is an appropriate form of ownership for medium sized business involving limited capital. This may include small scale industries, wholesale and retail trade; small service concerns like transport agencies, real estate brokers; professional firms like Chartered Accountants, Company Secretaries, Doctors' clinic, Attorney or law firms etc.  A partnership firm may be established by way of writing partnership agreement at appropriate value of stamp paper as may be prescribed under the Act of the state where the Registered Office of the Partnership is situated. – Click here  - Registration of Partnership Firm in India

Sole Proprietorship

A sole proprietorship is the oldest and the most common form of business in India. It is a one-man or a self-operated organisation where a single individual owns, manages and controls the business. Its main features are :-

• Ease of formation is its most important feature because it is not required to go through elaborate legal formalities. No agreement is to be made and registration of the Proprietorship is also not essential. However, the owner may be required to obtain a license specific to the line of business from the local authorities.
• Capital requirement of the Proprietorship is introduced wholly by the owner himself and depends largely on his own savings and profits of his business or unsecured loan from friends and relatives.
• Owner has a complete control over all the aspects of his business and it is he who takes all the decisions though he may engage the services of a few others to carry out the day-to-day activities.
• Owner alone enjoys the benefits or profits of the business and he alone bears the losses.
• The Proprietorship has no legal existence separate from its owner.
• The liability of the proprietor is unlimited i.e. it extends beyond the capital invested in the Proprietorship.
• Lack of continuity i.e. the existence of a sole proprietorship business is dependent on the life of the proprietor, therefore, permanent illness, imprisonment, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain.

Keeping in view, various Rules & Regulations applicable to the other vertical of the business as stated above, sole proprietorship is most ideal preposition to commence business with minimum possible cost and compliances.  Creation of Sole Proprietorship does not require any formal agreement or declaration under any law of India.

Selection of constitution of business structure

The choice of constitution of proposed entity to be set up depends upon various factors such as nature of business, size of business, risk factor, available financial resources and typical segment of market to be served /catered etc by the promoter shareholders.  In any case, LLP and Private Limited Company can be considered as suitable choice unless, until the circumstances suggest otherwise. All forms of business are subject to local taxes at the rate of 33%. Setting up a business in INDIA has following benefits :-

• India’s population as per 01.04.2020 database is 1.33 billion with a younger population base of 600 million (i.e, person under 25 years old). As a result, labour cost in India in all sectors is cheapest as compared to rest of the world.
• India is an overall a tax-friendly nation: it has a corporate tax of 33%, with free repatriation of capital and profits in most of the permitted sectors.
• Setting up a company in India is easy and convenient now a days, and can be completed in 2 to 3 working days.
• India is a free market economy, allowing for unlimited transfer of dividends, capital or profits out from India to any other country.
• The business language used in India is English, and it has an employable workforce of highly skilled and bilingual professionals.
• The country is politically, socially and economically stable, and has an investment-friendly environment.

Wholly owned Indian Subsidiary Company

Subsidiaries are a common feature of business houses and major businesses organize their operations in this way over the world. Subsidiary, in business matters, is an entity that is controlled by a separate entity. The controlled entity may be a company, corporation, or limited liability company and in some cases can be a government or state-owned enterprise, and such controlling entity is also known as its parent company. The reason for this distinction is that a sole company cannot be a subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a subsidiary. While individuals have the capacity to act on their own initiative, a business entity can only act through its directors, officers and employees. Contrary to popular belief, a parent company does not have to be the larger or "more powerful" entity; it is possible for the parent company to be smaller than a subsidiary, or the parent may be larger than some or all of its subsidiaries (if it has more than one). The parent and the subsidiary do not necessarily have to operate in the same locations, or operate the same businesses, but it is also possible that they could conceivably be competitors in the marketplace. Also, because a parent company and a subsidiary are separate entities, it is entirely possible for one of them to be involved in legal proceedings, bankruptcy, tax delinquency, indictment and/or under investigation, while the other is not. The most common way that control of subsidiary is achieved through the ownership of shares in the subsidiary by the parent company. The shareholding gives the parent company necessary votes to determine the composition of the Board of Directors of the subsidiary and in term control its affairs. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. Furthermore, subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation. click here --- how to incorporate Private Limited Subsidiary company.

Branch Office

Foreign companies are allowed to set up Branch Offices in India for the following purposes:

• Export/Import of goods
• Rendering professional or consultancy services
• Carrying out research work, in which the parent company is engaged.
• Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
• Representing the parent company in India and acting as buying/selling agents in India.
• Rendering services in Information Technology and development of software in India.
• Rendering technical support to the products supplied by the parent/ group companies.
• Foreign airline/shipping company
• Foreign Banks

Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Office in India. A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these activities to an Indian manufacturer.  Click here – Setting up Branch Office in India by Foreign Entity

Liaison Office

A Liaison Office (LO) functions as a representative office set up primarily to explore and understand the business and investment climate.  A Liaison Office (also known as Representative Office) can undertake only liaison activities. The role of such offices is, therefore, limited to collecting information about possible market opportunities, Source of supply, providing information about the parent company and its products to the prospective Indian customers or vice-versa to its vendor. Click here – How to establish a Liaison Office

Project Office

Foreign Companies planning to execute specific projects in India can set-up a temporary project/site office in India for carrying out activities only relating to the project for which it has setup project office. The Government of India has now granted general permission to foreign entities to establish project offices subject to certain terms & conditions. Such offices are prohibited from undertaking or carrying on any activity other than the activity relating to the execution of the project for which such office is established. Click here – How to Setting up a Project Office in India

Joint Venture Company

Joint Ventures are the most preferred module of corporate entities for Doing Business in India.  It is a temporary arrangement between two or more business entities to achieve specific objective.  Such arrangements are also known as Joint Venture (JV). A joint venture (JV) is a tactical partnership where two or more people or companies agree to put in goods, services and/or capital to a uniform commercial project. For any successful joint venture in India, compatibility between the contracting parties is key. The JVs are advantageous as a risk reducing mechanism in new-market penetration, and in pooling of resource for large projects. The Company incorporated in India, even up to 100% foreign equity, are at par at domestic companies. A Joint Venture may be any of the business modules available. There are no separate laws for joint ventures in India. Click here – How to Set up a Joint Venture in India.