A. BUSINESS MODELS:-
In India, the following types of business entities can be established:
- Private Limited Company– A Private Limited Company is held by a few individuals privately, having a separate legal entity. This type of entity does not permit the shareholders to trade their shares publically. It restricts its number of shares to fifty. The shareholders cannot sell their shares without the approval of other shareholders. To incorporate a Private Limited Company, a minimum of two members are required. However, the maximum number of members can reach up to two hundred[maximum number limited to fifty as per the Companies Act, 1956 (“1956 Act”)]. Further, a Private Limited Company must have a minimum of two Directors and can have a maximum of fifteen Directors. A minimum authorized capital (paid up share capital) of Rs.1,00,000/- (One Lakh) is required for forming a Private Company in India, however, there is no upper limit. The liability of each member or shareholders is limited. It means that if a Company faces loss under any circumstances then its shareholders are liable to sell their own assets for payment. The personal, individual assets of the shareholders are not at risk. Such liability of the members or shareholders can be limited by Shares or by Guarantee.
- Public Limited Company– A minimum of seven members are required to form a Public Limited Company. However, there is no restriction on maximum number of members. It must have minimum paid–up capital of Rs. 5 lakhs. The shares allotted to the members are freely transferable. The minimum number of Directors in such Companies is limited to three, however, the maximum can be up to fifteen. A Public Limited Company can raise funds from general public through open invitations by selling its shares or accepting fixed deposits. These Companies are required to write either ‘public limited’ or ‘limited’ after their names. Further by virtue of proviso to Section 2(71) of the Companies Act, 2013 (“2013 Act” for short), a Company which is a subsidiary of a Company, not being a private Company, shall be deemed to be public Company for the purposes of the said Act even where such subsidiary Company continues to be a private Company in its Articles.
- One Person Company–is a private organization that has only one shareholder as well as one director. The concept of OPC combines the benefits of registering a Company as private and yet one person can claim all its shares. The owner of the company should be resident citizen of India and should not be a minor. Further, no person is eligible to incorporate more than a One Person Company or become nominee in more than one such company.
The procedure of incorporation of Private Limited/Public Limited/ OPC can be explained as under:-
- Obtain Director Identification Number [DIN] for the proposed Director(s) DIN can be obtained by filling in the DIR-3 Application along with the following documents: Identity Proof (Copy of PAN Card), Address Proof (Copy of Passport/Election/Voter ID/ Driving Licence/ Aadhar Card/ Electricity Bill/etc.), Passport size photograph (one, recent), Current Occupation, email address of the Applicant, Contact Number and Educational Qualification. The DIR-3 has to be digitally signed by the Applicant.
- Obtain Digital Signature Certificate [DSC] for the proposed Director(s): DSC is equivalent (electronic format) of physical or paper certificate. Since the Ministry of Corporate Affairs accepts electronic submission of Forms on its website, the DSC is mandatory for all the users. It can be obtained by submitting a completely filled DSC application along with all documents as required for DIS-3.
- Select suitable Company Name, and make an application to the Ministry of Corporate Office for availability of name: After drafting of the main object of the proposed Company, the Applicant is required to file e-form INC-1 (Application for Reservation of Name) with the Registrar of Companies.
- Drafting of Memorandum of Association (MOA) and Articles of Association (AOA): After the selection of suitable name, MOA and AOA have to be drafted. Memorandum and articles of association of the company shall be signed by each subscriber to the memorandum who shall mention his name, address, description and occupation, if any, in the presence of at least one witness who shall attest the signature and shall likewise sign and add his name, address, description and occupation, if any. The witness shall be a practicing professional viz. practicing Company Secretary, Practicing Cost & Management Accountant, or practicing Chartered Accountant. Further, in case of OPC, the subscriber its memorandum shall nominate a person, after obtaining written consent of such person, who shall, in the event of subscriber’s death or his incapacity to contract, become the member of that one person company.
- Sign and file various documents including MOA & AOA with the Registrar of Companies electronically/Filing e-form:The following forms are required to be filed with the Registrar of Companies: Form No. INC-7 (declaration of compliance with the requirements of the Act on application for registration of a company), Form No. INC – 22 (notice of situation of registered office), Form No. DIR – 12 (appointment of directors of the company), and a Power of Attorney to be executed by subscribers and proposed directors (authorization by the promoters of the company to a person/s to carry out appropriate changes as suggested by the Registrar of Companies in any of the incorporation papers that have been filed). Form INC- 2 is the form for incorporation of ‘one person company’ which has to be submitted to the registrar along with the following attachments:- MOA, AOA, Proof of identity of member and nominee, residential proof of the member and the nominee, copy of PAN card of member and nominee, consent of nominee in form INC- 3, affidavit from the subscriber and first director to the memorandum in Form INC-9, list of all the companies (specifying their CIN) having the same registered office address, if any, specimen signature in form INC- 10, entrenched articles of association, proof of registered office address, copies of the utility bills. (not older than 2 months), proof that the company is permitted to use the address as the registered office of the company if the same is owned by any other entity/person, consent from the director, optional attachments.
- Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty: After submission of documents, the applicant is required to submit the requisite fee and stamp duty.
- Verification of documents/forms by ROC: After payment of ROC fee and stamp duties, the ROC verifies/scrutinizes all the documents and may suggest a few changes to be made in the attachments/documents.
- Issuance of certificate of incorporation by ROC: After completion of all the formalities, the subscriber shall receive the final incorporation certificate from the Registrar of Companies. On receipt of such certificate, the business can be commenced.
- Unlimited Company– a form of business organization under which the liability of all its members is unlimited. The personal assets of the members can be used to settle the debts. It can at any time re-register as a limited company under section 18of the 2013 Act.
- Limited Liability Partnership (LLP)– It is governed by the provisions of the Limited Liability Partnership Act, 2008 (“LLP Act” for short). The LLP is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. For an LLP to be incorporated, at least two persons must subscribe their name to a document called an incorporation document, which must then be submitted to the Registrar of companies. There is also a requirement of fling a statement in the prescribed form, made by either an Advocate, or a Company Secretary, or a Chartered Accountant or a Cost Accountant in whole time practice in India or by anyone who subscribed his name to the incorporation document that all the requirements under the Act and the rules made thereunder are complied with in respect of the incorporation, along with the incorporation document. The incorporation document must contain information such as the name of the LLP, its proposed business, address of its registered office, the name, address and photographs of the persons who are to be its partners on incorporation/ designated partners of LLP on incorporation and such other information concerning the proposed limited liability partnership as may be prescribed. Upon receiving the incorporation document the Registrar will retain and register it. Once the documents have been registered, the Registrar will, within a period of fourteen days, register the incorporation document and issue a certificate that the LLP is incorporated by the name specified in the incorporation document.
- Partnership– A partnership is governed by the provisions of the Indian Partnership Act, 1932 (“Partnership Act” for short), which defines partnership under Section 4 as “the relation between persons who have agreed to share the profits of the business carried on by all or any one of them acting for all”. A Partnership arises from a contract, and therefore, such a contract is governed not only by the provisions of the Partnership Act in that regard, but also by the general law of contract in such matters, where the Partnership Act does not specifically make any provision. A minimum of two persons are required to start a partnership business. The maximum number of partners is 10, in the case of a banking business and 20 in any other case. A partnership firm can be registered as per the provisions of Sections 58 and 59 of the Partnership Act, 1932, though it is not compulsory.
- Sole Proprietorship– Sole proprietorship is one type of business where the business owner is the master and slave of their venture. The business owner has the complete creative and financial control over the company and takes sole ownership of the profit and loss as well. This method is best suited for individuals who wish to start a business based on one-man work in a small scale. One of the most important feature of a Sole Proprietorship is the ease of its formation. No agreement is required 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 owner of the Sole Proprietorship 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. Starting a sole proprietorship is simple as compared to other form of Companies. Unlike, LLP or other private or public companies, in sole proprietorship, there is no requirement of filing an application before the ROC. Further, there is no requirement of a formal registration of a sole proprietorship. A person is simply required to open a bank account with the name and style and take license for varied services including service tax, VAT, IEC, Shops and Establishment License, PAN, Importer-Exporter Code, ESI, Professional Tax, Central Excise Duty, CST Registration, etc. After, obtaining the requisite license, a person can commence with his/her sole proprietorship firm in India.
- Foreign Company– A foreign company can start working by registering under private or public limited company under Company’s Act, 2013 in either by forming a JV or Joint Venture with an Indian firm in the partnership in the ratio of 51:49 where the maximum ratio is held by an Indian firm or an Indian partner or by establishing wholly owned subsidiary in India (1005 foreign investment is allowed in India). They can also set up their base (instead) in India by establishing a liaison office (cannot indulge in any commercial activity, their role is to study the market in India and disseminate the information to the parent company) or branch office in India.
B. ENTREPRENEUSHIP IN INDIA:-
India is witnessing a major growth in entrepreneurship-not because of its X factor but out of the need for its citizens to create their own job. Several governmental schemes such as the “Start up India” have been a major factor for promoting and facilitating entrepreneurial ventures in India.