There are different type of companies one can register for their startup or business. We will discuss features, pros and cons of each type in this article
Public Limted Company :
To start Public Limited Company one need to have minimum 7 shareholders requirement. There is no limit on number of shareholders. You required Rs.5,00,000 minimum investment and also need to have minimum 3 Directors in your company.
In Public Limited Company, founders generally have less control in management of company. It slows down decision making process as less control in management. These companies can get listed in stock market for public to invest for that one need to bring IPO for their company.
These company require huge capital to incorporate and also need to deal with lots of compliance. So, Public Limited Company are not recommended for Startups.
Features Of Public Limted Company :
- Have limited liability.
- Have high Compliance and regulations.
- Can raise funds from public as listed in Stock Exchange.
- High Transparency as have more regulations.
- Must have the suffix “Limited” in the end of company name as shown in the below examples.
Public Limited Companies Examples :
- Wipro Limited
- Infosys Limited
- Asian Paints Limited
- MRF Limited
Private Limted Company:
To Start Private limited company one need to have minimum 2 people requirement. While registration of company with ROC (Registrar of Companies) you need to approve two names and objective of company.
ROC not approved already registered name or similar, so make sure to choose unique name for your company. For approving company name you need to submit digital signature of directors and shareholders.
Then you need decide registered office of a company. You can even set temporary address but you change it with a permanent address within a month. You need to decide number of shares of directors and shareholders in advance to avoid any conflict.Shareholders and directors could be same person. But, It is not mandatory that only shareholders can be director.
After that you need to approach certificate professional like like CA, Cost accountant. They will digitally upload your form and documents at the MCA portal on your behalf. You need to approach an Certified CA to deal with it.
If all your document and info is correct only then ROC will approve your company within a month. (If during company registration you have fill Information about your Pan card and tan then you will be allotted pan card and tan along with company registration).
Through pan and tan, you can immediately open bank account for your company. And then you need to put promoter’s contribution at bank. On that basis, you will get Commencement of Business Certificate.
To promote startup Government of India has reduced stamp duty up to Rs.15,00,000 capital.You should check the state of your Registered Office before registering as Stamp duty is different for different state. Choose those states where Stamp duty is waived off or less.
Private Limited company have Limited number of shareholders therefore can’t expand much, as maximum 200 people are allowed. In Pvt Ltd company only needs minimum Rs.1,00,000 investment. These types of companies are generally not listed in Stock market. Therefore it is sometimes difficult to raise funds from public as not listed in Stock Exchange.
One can still raise funding in Pvt ltd companies through Angel investors and Venture capital firms. The taxation rate of Pvt ltd is 25% if turnover of company is below 250 crore. If above 250 crore than 30%.
Due to less regulations, private limited companies may relatively have less transparency. Pvt Ltd companies are most recommended for Startups as they are relatively easy to incorporate and here you also don’t need to deal with hefty compliance and also various other features which are best suited for most Startups.
Features Of Private Limted Company :
- Have limited liability
- Have relatively low Compliance and regulations.
- Founder have relatively high control in management of company.
- Quick decision making process as more control in management.
- Must have the suffix “Pvt Ltd” in the end of company name.
Private Limited Companies Examples :
- Microsoft Corporation (India) Pvt Ltd
- Hibu India Pvt Ltd
- Netapp India Pvt Ltd
Limited Liability Patnership :
One can start Limited Liability Partnership within a month. It has very low registration cost. It have less compliance even lesser than private limted company. You don’t need to do compulsory audit if turnover less than Rs.40,00,000 and capital less than Rs.25,00,000 unlike private and public limited company.
To start LLP one need to choose two name of unique trademark and need to clarify objective of their company.
While registration also need to submit digital signature of their partner. After video verification you can succesfully registered for LLP. If you set temporary address while registration you need to change address within a month. You need to hire CA and also need to register Company’s pan and Current account.
The biggest disadvantage of LLP is difficulty to raise external investment. As in LLP even investor has to take liability as well. The taxation rate of LLP is around 30%.
If you want to deal with least number of compliance than you can opt for LLP for your Startup.
One Person Company (OPC) :
An individual can opt for One person compamy as there is no minimum capital requirement and also no minimum number of directors and shareholders requirement . You only need to choose close member of family as nominee who may or may not be involve in work of your business.
OPC have less compliance then Pvt Ltd Company. OPC is good for small business. But if Annual turnover of OPC company exceed Rs 2 crore and company’s capital exceed Rs 50 lakhs than you need to convert it into regular Pvt Ltd company as per rules. It takes significant amount of time to convert from OPC to PVT Ltd company.
So, If you have very small business then only you can opt for OPC otherwise PVT Ltd is best option available for Startups.