Introduction: 

Embarking on an entrepreneurial journey requires meticulous planning and strategic decision-making. In “The Startup Blueprint,” we unravel the crucial steps of founding a company, focusing on the pivotal elements of selecting the right company type and assembling a winning team. As we navigate through the intricacies of business formation, we delve into the diverse landscapes of company structures and the key roles that shape a thriving startup.

Types of companies:

Private Limited Company:

  1. The ownership of the company is private.
  2. The company can be formed with a minimum of 2 and a maximum of 200 members.
  3. A private limited company cannot issue prospectuses in the public market.
  4. The shares are not freely transferable.

Registration of a Private Limited Company:

  1. Unique Name: Choose a unique and distinctive name for the company that complies with the regulations and is not already in use or reserved by another entity.
  2. Minimum Requirements: Typically, a minimum of two directors and two shareholders are required. One of the directors must be a resident of the country where the company is registered.
  3. Authorized and Issued Capital: Specify the authorized capital (maximum amount the company can raise) and the issued capital (amount actually subscribed by shareholders).
  4. Memorandum of Association (MOA): Define the company’s objectives and scope of activities in the MOA. This document outlines the company’s constitution.
  5. Articles of Association (AOA): The AOA details the internal rules and regulations for the company, including the roles and responsibilities of directors and shareholders.
  6. Director Identification Number (DIN): Directors must obtain a DIN, which is a unique identification number required for directorship.
  7. Digital Signature Certificate (DSC): Obtain a DSC for at least one director. It is essential for digitally signing documents filed with the Registrar of Companies (RoC).
  8. Registered Office: Declare the official address of the company, which will serve as its registered office. All official communications will be sent to this address.
  9. Registrar of Companies (RoC) Filing: Submit the necessary documents, including the MOA, AOA, and other required forms, to the RoC for approval.
  10. Certificate of Incorporation: Once the RoC is satisfied with the documents, they will issue a Certificate of Incorporation, signifying the company’s legal existence.
  11. PAN and TAN: Apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for the company to facilitate tax-related transactions.
  12. Bank Account: Open a company bank account using the Certificate of Incorporation, PAN, and other relevant documents.
  13. Goods and Services Tax (GST) Registration: If applicable, register for GST with the tax authorities.
  14. Compliance and Annual Filings: Adhere to ongoing compliance requirements, including annual filings, board meetings, and statutory audits.

Public Company

  1. Public companies issue their prospectus to the public and whose securities are traded on a stock exchange.
  2. The company can be formed with a minimum of seven members.
  3. Shares can be easily transferred.
  4. Public companies require disclosures and compliances from the government and other authorities, such as SEBI and RBI.

Registration of a Public Company:

  1. Minimum Requirements: A public company typically requires a minimum of three directors and seven shareholders.
  2. Authorized and Issued Capital: Define the authorized and issued capital, specifying the maximum amount the company can raise and the subscribed amount by shareholders.
  3. Memorandum and Articles of Association: Draft and submit the Memorandum and Articles of Association outlining the company’s objectives and internal regulations.
  4. Prospectus: Prepare and file a prospectus if the company intends to raise capital from the public. This document provides details about the company and its offerings.
  5. Registrar of Companies (RoC) Filing: Submit necessary documents, including the Memorandum, Articles of Association, and prospectus, to the RoC for approval.
  6. Certificate of Incorporation: Upon approval, the RoC issues a Certificate of Incorporation, signifying the legal existence of the public company.
  1. Listing Requirements: If planning to list on a stock exchange, adhere to the specific listing requirements and regulations of the chosen exchange.
  2. Director Identification Number (DIN): Directors must obtain a DIN, a unique identification number required for directorship.
  3. Digital Signature Certificate (DSC): Obtain a DSC for at least one director, essential for digitally signing documents filed with the RoC.
  4. Public Issue Compliance:Ensure compliance with regulations related to public issues, such as SEBI guidelines in India.
  5. Securities and Exchange Board of India (SEBI) Approval: If applicable, obtain approval from SEBI for the public issue.
  6. Annual Compliance: Adhere to ongoing compliance requirements, including annual filings, board meetings, and statutory audits.
  7. Bank Account: Open a company bank account using the Certificate of Incorporation, PAN, and other relevant documents.
  8. Goods and Services Tax (GST) Registration: If applicable, register for GST with the tax authorities.
  9. Corporate Seal: Some companies may choose to have a corporate seal for formalizing documents, although it’s not mandatory.

Sole Proprietorship

  1. A sole proprietorship is a business structure owned and operated by a single individual. The owner is personally responsible for all aspects of the business.
  2. The owner has unlimited personal liability, meaning their personal assets are at risk if the business faces financial difficulties or legal issues.
  3. In India, the standard rate of taxation for sole proprietorships is 30%. Companies that do not make a profit and have less than Rs 1 crore in revenue are subject to 30% corporation tax rates.

Which is mathematically calculated by using the following formula, which determines the tax that a sole proprietorship must pay: Taxable Income x Applicable Rate = Total Tax Due.

For instance, if taxable income is Rs 1 lakh and the applicable rate is said to be 30%, then using the formula mentioned above, the total taxes due would be Rs 30,000, i.e., Rs 1 lakh x 30%.

  1. The owner has unlimited personal liability, meaning their personal assets are at risk if the business faces financial difficulties or legal issues.

5. Sole proprietors usually face challenges in terms of raising funds as the business is single-handedly managed by a single owner who has no perpetual succession or separate legal status. Hence, he is the one who bears the losses and profits himself.

Registration of a Sole Proprietorship 

There is no specific procedure that is required for the registration of a sole proprietorship firm. However, there are certain basic requirements that need to be obtained before getting into the business. Such as:

  1. The owner has to obtain the registration certificate under the Shops and Establishment Act of the state in which his business is situated.
  2. The owner whose business turnover exceeds Rs. 20 lakh should get them registered for GST.
  3. The owner can also register them as micro, small-scale enterprise, or depending on the size of their firm under the MSME Act.

One-Person Company

  1. A one-person company is a unique form of business structure that allows a single individual to establish and operate a company.
  2. Similar to larger corporations, OPC provides limited liability protection to its sole owner, separating personal assets from business liabilities.
  3. The OPC requires the appointment of a nominee director during incorporation. This individual takes charge in case the sole owner is incapacitated.
  4. OPCs enjoy certain tax advantages, and the owner is taxed at corporate tax rates, which can be advantageous depending on the income levels.

Partnership

  1. A partnership is a business structure where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a partnership deed.
  2. Profits and losses are shared among the partners based on the agreed-upon terms outlined in the partnership deed.
  3. Partnerships are not taxed at the business level. Instead, profits and losses are passed through to the individual partners, who report this on their personal income tax returns.
  4. The continuity of a partnership may be affected by changes in the partners, and the death or withdrawal of a partner can impact the business unless there are provisions in the partnership deed for such events.

Limited Liability Partnership

  1. An LLP combines the features of both a partnership and a corporation, offering limited liability to its partners.
  2. An LLP is a separate legal entity from its partners, providing limited liability protection to each partner. Personal assets are generally shielded from business debts.
  3. LLPs are taxed as pass-through entities, where profits and losses are passed through to the individual partners and taxed at their personal income tax rates.
  4. Unlike general partnerships, where personal assets are at risk, in an LLP, each partner’s liability is limited to the amount they invest in the business, safeguarding personal assets.