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Selecting the appropriate business structure is an important and critical choice that should be made when initiating a business. As the business develops and advances, this decision should be reassessed regularly. Several commonly used forms of business entities include Sole Proprietorship, Private Limited Company, Partnership Firm, Limited Liability Partnership (LLP), and One Person Company. Each of these business structures presents unique advantages and limitations for business owners, and it is essential to evaluate the merits and drawbacks of each option meticulously before making a final decision.

Sole proprietorship:

Sole proprietorship is a popular form of business in India, especially among small businesses. In India, there are no specific laws governing the registration of sole proprietorship businesses. However, there are certain legal and regulatory requirements that a sole proprietor must comply with to operate the business.

Some of the legal and regulatory requirements for a sole proprietorship business include:

·       Business registration: Though sole proprietorship businesses are not required to register with the government, they may need to obtain a trade license and other permits from local authorities to operate their business.

·       Tax registration: Sole proprietors must register for a Permanent Account Number (PAN) and a Goods and Services Tax (GST) if their annual turnover exceeds a certain limit.

·       Compliance with legal requirements: Sole proprietors must comply with all legal and regulatory requirements applicable to their business, such as labour laws, environmental laws, and data privacy laws.

·       Liability: Sole proprietors are personally liable for any debts and legal obligations of the business. This means that their personal assets may be used to settle any outstanding liabilities of the business.

Winding Up Process

As a sole proprietorship is not considered a separate legal entity, it does not have a separate winding up process. Instead, the proprietor will need to settle all debts and obligations of the business and then close down the operations.

Partnership Firm

The Indian Partnership Act of 1932 outlines the rights and responsibilities of partners within a partnership firm, as well as the legal relationships between partners and third parties. 

Incorporation of partnership firm:

·       Choosing a Name: The partners should first choose a unique name for their firm that is not already registered by another business.

·       Partnership Deed: The partners should then draft a partnership deed that outlines the terms and conditions of their partnership, including their respective roles, profit-sharing ratios, and responsibilities.

·       Stamp Duty: The partnership deed must be printed on stamp paper of the appropriate value, as per the laws of the state where the firm is being registered.

·       Registration: The partnership firm must then be registered with the Registrar of Firms in the state where the firm is located. 

·       Other than this the partnership firm has to obtain licenses and permits, PAN and TAN, as applicable.

Compliances required under the Act:

·       Registration of the firm in Form I must be completed within a year of incorporation . 

·       If there are changes to the company name, principal location, or business type, Form II must be submitted within 90 days. 

·       In the case of branch closures or openings, Form III must be submitted within the same time frame. 

·       If there are changes to the name or address of partners, Form IV must be submitted within 90 days. 

·       Form V must be used for changes to the company's constitution or dissolution, and it must be submitted within the same timeframe. 

·       When a minor reaches the age of majority and decides whether or not to become a partner, Form VI must be submitted within 90 days. 

Winding Up Process

In a partnership, the dissolution can be either voluntary or by court order. The process for winding up a partnership involves the following steps:

·       Drafting a partnership dissolution deed.

·       Notifying all creditors and debtors of the dissolution of the partnership.

·       Paying off all outstanding debts and liabilities.

·       Distributing the remaining assets among the partners as per the partnership deed.

·       Applying for the cancellation of the partnership registration.

Limited Liability Partnership

Limited Liability Partnerships (LLPs) are governed by the Limited Liability Partnership Act, 2008 and there are several mandatory compliance requirements that LLPs must adhere to. 

The process of incorporating a Limited Liability Partnership (LLP) in India involves the following steps:

·       Obtain a Digital Signature Certificate (DSC): The first step is to obtain a digital signature certificate for all the designated partners. The DSC is required to sign the electronic documents that are filed with the Registrar of Companies (ROC).

·       Obtain a Director Identification Number (DIN): The next step is to obtain a Director Identification Number (DIN) for all the designated partners. The DIN is a unique identification number that is required for all individuals who wish to become directors of a company or LLP.

·       Name reservation: The next step is to reserve a name for the LLP. The name must be unique and not already registered with the Registrar of Companies. An application for name reservation can be made through the MCA portal.

·       Filing of incorporation documents: Once the name is reserved, the incorporation documents must be filed with the Registrar of Companies within 60 days. The documents include the consent of partners, address proof, PAN Card of partners and other necessary documents.

·       Issuance of Certificate of Incorporation: If the Registrar of Companies is satisfied with the documents submitted, a Certificate of Incorporation will be issued, and the LLP will be deemed to be incorporated.

·       Filing of LLP agreement: Within 30 days of incorporation, the LLP agreement must be filed with the Registrar of Companies.

·       Obtaining PAN and TAN: Once the LLP is incorporated, an application must be made to obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.

Here are some of the key compliance requirements for LLPs:

·       Filing of Annual Return: Every LLP is required to file its Annual Return with the Registrar of Companies (ROC) within 60 days of the end of the financial year.

·       Filing of Statement of Accounts and Solvency: Every LLP is required to file a Statement of Accounts and Solvency with the ROC within 30 days from the end of six months of the financial year.

·       Appointment of Auditor: LLPs with a turnover of Rs 40 lakhs or more, or contribution of Rs 25 lakhs or more are required to appoint an auditor within 30 days before the end of the financial year and such auditor must be a qualified Chartered Accountant.

·       Maintenance of Books of Accounts: All LLPs are required to maintain proper books of accounts as per the provisions of the LLP Act, 2008.

·       Compliance with Income Tax and GST: All LLPs are required to file their Income Tax Return on or before 30th September each year. If the LLP is registered under the Goods and Services Tax (GST), it must file monthly, quarterly, and annual returns, as applicable with the GST authorities.

Winding Up Process

The process of winding up an LLP can be commenced either voluntarily or through a Tribunal. In case the decision is taken voluntarily, the LLP must pass a resolution for winding up, with approval of at least three-fourths of the total number of Partners. Additionally, if the LLP has any creditors, whether secured or unsecured, their approval would also need to be obtained for the winding up process to proceed.

Private Limited Company

A company is an artificial person that poses a separate legal entity, perpetual succession, common seal, and limited liability. It is governed by the provisions of the Companies Act, 2013.

Incorporation of company

·       Obtain a Digital Signature Certificate (DSC): The first step in the process is to obtain a DSC, which is an electronic form of a signature. This is required for the proposed directors of the company.

·       Obtain a Director Identification Number (DIN): The next step is to obtain a DIN for all the proposed directors of the company. This can be done online by filling out an application on the Ministry of Corporate Affairs (MCA) website.

·       Choose a company name and obtain approval: The next step is to choose a name for the company and obtain approval from the Registrar of Companies (ROC). The name should be unique and not already in use by another company.

·       Prepare and file incorporation documents: The next step is to prepare and file the incorporation documents with the ROC. The documents include the Memorandum of Association (MOA) and Articles of Association (AOA), which outline the company's objectives and rules of operation.

·       Obtain Certificate of Incorporation: Once the ROC verifies and approves the incorporation documents, the company will receive a Certificate of Incorporation. This marks the official registration of the company.

Compliances of a registered company

·       Appointment of directors: A private company must have at least two directors and may appoint additional directors (upto fifteen) as required. However one person company (OPC) can be formed only with one director. The directors must also comply with certain eligibility criteria, such as not being disqualified under the Act.

·       Annual General Meeting (AGM): Every company must hold an AGM within six months from the end of its financial year. The AGM must be held at a convenient time and place, and all shareholders must be given adequate notice of the meeting.

·       Maintenance of books of accounts: Companies must maintain proper books of accounts and other relevant records to reflect their financial transactions.

·       Filing of annual returns: Companies must file their annual returns with the Registrar of Companies (ROC) within 60 days of the AGM.

·       Board meetings: Companies must hold board meetings at regular intervals, at least four times a year. The board meetings must be conducted in compliance with the provisions of the Act.

·       Disclosure of directors' interests: Directors must disclose their interests in any contracts or arrangements entered into by the company.

Winding Up Process

The winding up process for a company is governed by the Companies Act, 2013. The process involves the following steps:

·       Appointment of a liquidator.

·       Preparation of a winding up report.

·       Settling all outstanding debts and liabilities.

·       Distributing the remaining assets among the stakeholders in accordance with the priority of claims.

·       Filing of a petition for winding up with the National Company Law Tribunal.

·       Declaration of solvency or insolvency, as applicable.

·       Application for striking off the name of the company from the Register of Companies maintained by the Registrar of Companies.

References:

https://www.legalservicesindia.com/article/1889/Steps-to-be-followed-for-the-Incorporation-of-Company-in-India.html

https://www.taxmann.com/post/blog/5775/formation-and-incorporation-of-limited-liability-partnership-llp-step-by-step-process/