Setting up a new business in a country like India can be very demanding. There are so many formalities to be completed, such extensive documentation work to be handled, Getting approvals etc. There are a whole lot of laws, Rules and regulations that have to be taken care of in such a scenario, if you wish to start your own business, you will need an expert guide. SHREEKHETRA TAX CONSULTANCY has been playing that role for you. Our experienced professionals provide the best Business Setup Services in Odisha and all over India. Our gamut of services not only include business set up services in India but also post incorporation services related to Company Law, FEMA, RBI compliances, VAT, Service Tax and Income Tax matters etc.

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CONSTITUTION – VERTICALS AVAILABLE IN INDIA

The following types of Business entities are available in India:

• Private Limited Company

• Public Limited Company

• Limited Liability Partnership (LLP)

• Partnership

• Sole Proprietorship

Within the above framework of constitution of an entity, The foreign investor or foreign company intends to do business in India can have following setup :

• Wholly owned Subsidiary Company

• Branch Office

• Liaison Office

• Project Office

• Joint Venture Company

 

What is a Private Limited Company?

A Private Limited Company is a Company limited by shares must have minimum paid-up share capital of Rs. One Lakh. It can have maximum 200 (Two Hundred) shareholders and it cannot invite public for subscription of its shares or debentures. Further, The shares of Private Limited Company are not freely transferable under the Companies Act, 2013. 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).

 

What is a Public Limited Company?

A Public Limited Company is a Company limited by shares must have minimum paid-up share capital of Rs. Five Lakh. 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 shareholders is 7 (Seven).

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What is Limited Liability Partnership (LLP)?

LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. LLP is a separate legal entity is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. Further, In LLP, No partner is liable on account of the independent or un-authorized actions of other partners, 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.

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What is Partnership Firm?

Partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by all of them or any of them acting for all. The owners of a partnership business are individually known as the "partners" and collectively as a "firm".

Its main features are :-

• A partnership is easy to form as no cumbersome legal formalities are involved. Its registration is also not essential. However, If the firm is not registered, It will be deprived of certain legal benefits. The Registrar of Firms is responsible for registering partnership firms.

• The minimum number of partners must be two, While the maximum number can be 10 in case of banking business and 20 in all other types of business.

• The firm has no separate legal existence of its own i.e., The firm and the partners are one and the same in the eyes of law.

• In the absence of any agreement to the contrary, All partners have a right to participate in the activities of the business.

• Ownership of property usually carries with it the right of management. Every partner, Therefore has a right to share in the management of the business firm.

• Liability of the partners is unlimited. Legally, The partners are said to be jointly and severally liable for the liabilities of the firm. This means that if the assets and property of the firm is insufficient to meet the debts of the firm, The creditors can recover their loans from the personal property of the individual partners.

• Restrictions are there on the transfer of interest i.e. none of the partners can transfer his interest in the firm to any person(except to the existing partners) without the unanimous consent of all other partners.

• The firm has a limited span of life i.e. legally, The firm must be dissolved on the retirement, Lunacy, Bankruptcy or death of any partner.

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 charted accountants, 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.

 

What is Sole Proprietorship?

A sole proprietorship is the oldest and the most common form of business in India. It is a one-man 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 firm is also not essential. However, The owner may be required to obtain a license specific to the line of business from the local administration.

• The capital required by the organization is supplied wholly by the owner himself and he depends largely on his own savings and profits of his business.

• 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 firm 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 firm.

• Lack of continuity i.e. the existence of a sole proprietorship business is dependent on the life of the proprietor and illness, Death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain.

However, 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 compliance.  Creation of Sole Proprietorship does not require any formal agreement or declaration under any law of  our country.

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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

 

Wholly owned Subsidiary Company

Subsidiaries are separate, Distinct legal entities for the purposes of taxation and regulation. 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 lone 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 a subsidiary is achieved is through the ownership of shares in the subsidiary by the parent company. These shares give the parent company the necessary votes to determine the composition of the board of the subsidiary and so exercise control. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary.  A subsidiary company may be a Private Limited Company.

 

Branch Office

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 to an Indian manufacturer.

 

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 vise versa  to its vendor.

 

Project Office

Foreign Companies planning to execute specific projects in India can set up a temporary project/site offices 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 terms & conditions.

 

Joint Venture Company

Joint Venture Companies are the most preferred module of corporate entities for Doing Business in India to achieve specific objectives of a partnership like temporary arrangement between two or more firms. 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. They, However present unique problems in equity ownership, operational control and distribution of profits (or losses).