Choosing the right business structure allows your business to operate efficiently and meet your business targets.
Every business must register since its part of legal compliance in India. But before we get into that, let’s take a look at the types of business structures in India.
1). One Person Company
OPC is the best way to operate as a sole proprietor since you can carry on with your work and still be part of a corporate framework.
2). Public Limited Company
This is a voluntary association that is incorporated under company law. It has a separate legal existence with the liabilities of its members limited to the shares they hold.
3). Private Limited Company
In the eyes of the law, PLC is regarded as a separate legal entity from its founders since it has shareholders (stakeholders) and Directors (company officers).
Each of these individuals is regarded as a company employee.
PLC allows you to infuse equity or bring in Foreign Direct Investment in the future.
4). LLP (Limited Liability Partnership)
This is a separate legal entity where the liabilities of its partners are limited to their agreed contribution. It is established under the Limited Liability Act, of 2008 by the Registrar of Companies (ROC).
Importance of Business Structure
One important thing you need to know when choosing your business structure is that your Income Tax Returns will depend on it.
Each business structure has different levels of compliance that a company should adhere to.
For instance, a sole proprietor only files income tax returns while a company has to file both income tax returns and annual returns with the Registrar of Companies.
A company’s books of accounts have to be audited yearly. All these require spending money on auditors, accountants, and tax filing experts.
Therefore as an entrepreneur, you must have a clear idea of the kind of legal compliances you are willing to deal with.
What you need to consider when choosing a business structure.
a). How many partners the business has?
If you are a single person running your business, then a One Person Company would be ideal for you.
If your business has two or more owners and is actively seeking investment from other parties a Limited Liability Partnership (LLP) or Private Limited Company would be the best choice.
b). Your initial investment
If you do not want to spend much then go for a Sole Proprietor, HUF, or Partnership firm.
However, if you are confident enough that you will be able to recover the setup and compliance costs, then you can choose One Person Company, LLP, or a Private Limited Company.
c). How much are you willing to bear with the entire liability of the business?
With a Sole Proprietor, HUF, and partnership firm has unlimited liability making the risk of personal assets high. This is because, in case of any default in loans, the entire money is recovered from the members or partners in the profit-sharing ratio.
On the other hand, Companies and LLPs have a limited liability clause. The liability of the members is restricted to the amount of contribution they made or the value of shares a member holds.
d). The Income Tax Rates Applicable to The Business
For Sole Proprietorship and a HUF, the income tax rates are the normal slab rates. But for entities like partnership firms and companies, the tax rate is 30%.
e). Are you getting funds from investors?
Your business has to be registered to make it easier to get investors. Entities like LLP and Private Limited Companies tend to get investors firster than any other structure.
Registering an online business in India can be done either as a private or public company. Any online business wishing to register as a company in India must know about the Companies Act, of 1956.
How To Register An eCommerce Business In India
A sole proprietorship is the easiest way to start a company since it requires less legal compliance and is easier to handle. A sole proprietorship firm is a single entity in all matters.
As a proprietor, you can run your business from the comfort of your home but as the business grows and becomes profitable, you might want to set up a physical location.
Due to this, you will need to complete paperwork as per the Shops and Establishment Act of 1965 and register the documents with your local municipal corporation for further processing.
Any online business that intends to accept any form of online payment should be a registered company.
How to Register?
Go to your nearest local municipal corporation office and submit the duly filled Shops and Establishment Form. You will also need to submit the following documents too:
- Registration Form
- Fee Schedule
How much does it Cost?
There is no additional cost required. All you will need is a bank account in the name of your business.
Apply For Company Registration.
This step includes:
- incorporating the company name
- registering the office address
- A notice for appointment of the company directors, managers, and the secretary
- declaring the employees’ salary structure.
To be able to proceed with the process, these forms will be required.
Form 1: in this form, the application or change of a company name is declared. After applying for a new company name, the municipal authority suggests four different forms from which you get to choose the most suitable one for you. You can download the form from www.mca.com.
Form 18: in this form, you get to declare the authentic office address for your new eCommerce business. You can collect this form from your local municipality office or download it from their website.
Form 32: if you have a new online business, this form declares the appointments of new Directors, Managers, and secretaries. You can download the form from their website (www.mca.com) or visit your local municipal office.
Once you submit these forms and the municipal authority has approved your application, you will receive a confirmation email stating that your store has been successfully incorporated and then the status of the form will change to “Approved.”
Documentation for The Registration Process.
Director’s Identification Number.
Any promoters who want to be Directors in a company have to apply for Director’s Identification Number (DIN). The DIN of all proposed directors of the company along with the name and the address proof are to be provided in the company registration form.
Digital Signature Certificate (DSC)
DSC is required to file the MCA portal. It is mandatory for all the proposed directors and subscribers of the Memorandum of Association (MoA) and Articles of Association (AoA).
PAN & TAN
A Permanent Account Number (PAN) is assigned to all taxpayers in India (even non-resident Indians) as an identification number that contains all the tax-related information for a company or an individual.
TAN is the Tax Deduction and Collection Account Number which is normally a 10-digit alphanumeric number. It is issued to those who deduct or collect taxes under Section 203A of the Indian Income Tax Act of 1961.
An Aadhaar card is a 12-digit individual identification number that serves as proof of identity and addresses anywhere in India.
The Aadhaar card is issued to individuals or companies by the Unique Identification Authority of India on behalf of the government of India.
Documents of Directors and Shareholders of the company / Partners of the LLP.
For proof of identification (any of the below can be used)
- PAN card
- Aadhaar Card
- Driving license
For proof of address (any of the below can be used)
- Latest telephone bill (within last 2 months)
- Latest electricity bill (within last 2 months)
- Bank account statement with address
DIN (DPIN for LLP) and DSC for directors/Partners.
Documents of the Company/LLP
Proof of registered office of the company (the following must be submitted)
- tenancy/rental agreement between the landlord and company/LLP
- Letter or NOC from the landlord granting permission to use the office.
- Sale deed of the company/LLP office.
The Memorandum of Association (MoA) contains the company objects which is going to incorporate and the liability of its members.
Articles of the Association (AoA) which lays down the by-laws on which the company is to operate.
1). Fill out an application to get the Directors Identification Number (DIN). it takes less than a day.
2). Apply for The Digital Signature Certificate of the Directors for the Proposed Private Limited Company in India.
3). Apply for company registration by first filling out the SPICe+ form and submitting it on the MCA portal. The company also needs to reserve its name by submitting two proposed names in the Part-A of form SPICe+.
If the name turns out to be similar to a name of an existing company, LLP, or trademark or contains prohibited words under Companies Incorporation Rules 2014 then you will have to re-fill another SPICe+ form.
This will include a prescribed fee.
4). After obtaining the confirmation on the name fill out an application for the company,s registration to the same ROC of the state where the company has its headquarters.
The company’s members also need to be ready with legal documents such as a Memorandum of Association and Article of Association, identity proof, and residential proof of the Stakeholders.
5). Apply for VAT through the Commercial Tax Office and Professional Tax At The Profession Tax Office. You will receive the identification Codes within a few days.
6). Apply for Provident Fund (PF) with the respective Provident Fund Organization. Note that you will need to submit all essential documents of the employees.
7). You will also need to register with the Employees’ State Insurance Corporation for employees’ medical insurance.
If your employees ever get into an accident while working, then this insurance will take care of the medical expenses on behalf of your company.
You will have to submit the essential documents of the employees to the regional office.
8). After all approvals are done, apply for the Certification Of Company’s Incorporation.
The Certificate of Incorporation is issued with PAN and TAN. A Certificate of Incorporation is sent to the applicant together with PAN and TAN.
Registering a company involves a lot of processes and therefore you should be well prepared and decide on the structure you intend to use for your company.
Before registering your business it is important to do market research, find a product fit and choose a name for your company to avoid unnecessary roadblocks during the registration process.
You can not register a business if you do not know the name and what products or services you intend to offer to customers.
Think about the directors and all that is required from them when registering the company.
We hope this article has helped you gain all the knowledge and courage to start the process of registering your online business in India. Don’t forget to share the article to help us reach more people.