Private Limited Company

Meaning

Section 2(68) of Companies Act, 2013 defines private companies. According to that, private companies are those companies whose articles of association restrict the transferability of shares and prevent the public at large from subscribing to them. This is the basic criterion that differentiates private companies from public companies.

The Section further says private companies can have a maximum of 200 members (except for One Person Companies). This number does not include present and former employees who are also members. Moreover, more than two persons who own shares jointly are treated as a single member.

Features

No minimum capital required: There was a minimum paid-up share capital requirement of Rs. 1 lakh previously, but that is omitted now.

Minimum 2 and maximum 200 members: A private company can have a minimum of just two members (but just one is enough if it a One Person Company), and a maximum of up to 200 members.

Transferability of shares restricted: Private companies cannot freely transfer their shares to the public like public companies. This is why stock exchanges never list private companies.

“Private Limited”: All private companies must include the words “Private Limited” or “Pvt. Ltd.” in their names.

Privileges and exemptions: Since private companies do not freely transfer their shares and involve limited interest by members, the law has granted them several exemptions that public companies do not enjoy.

Procedure

Once a name for the company is decided by the Proposed Directors, then the following steps have to be taken by the applicant:

• Step 1: Apply for DSC (Digital Signature Certificate) and DIN (Director Identification Number)
• Step 2: Apply for the name availability
• Step 3: File the MOA and AOA to register the private limited company
• Step 4: Apply for the PAN and TAN of the company
• Step 5: Certificate of incorporation will be issued by RoC with PAN and TAN
• Step 6: Open a current bank account on the company name

Limited Liability Partnerships (LLPs)

Meaning

The Parliament of India passed the Limited Liability Partnership Act in 2008 to govern LLP businesses in India. According to Section 2 of this law, an LLP is a partnership registered under the Act. Further, an LLP agreement means a written agreement either between an LLP’s partners or between the LLP itself and its partners. This agreement defines the rights, liabilities, duties, and powers of the partners.

Since the Limited Liability Partnership Act, 2008 specifically governs limited liability partnerships in India, the provisions of the Indian Partnership Act, 1932 are not applicable to LLPs. They only apply to traditional partnership firms.

Features

Partners of typical partnership firms have unlimited liability towards their collective debts and legal consequences. This means that their own assets are liable for attachment for meeting the firm’s debts and liabilities. And limited liability partnerships (LLP) solves this problem.

An LLP has all basic features of a regular partnership firm, except that of same legal entity status and unlimited liability of partners. Consequently, limited liability partnerships have legal existence and identity separate from that of its partners. Furthermore, its partners have limited liabilities.

The salient features of LLP Act, 2008, inter alia, are as follows

• It is a body corporate with separate legal entity from its partners. The mutual rights and duties of the partners of an LLP are governed by LLP Agreement.
• LLP is liable to the extent of its assets. Partner’s liability is limited to the extent of agreed contribution (capital) in the LLP Agreement.
• No partner is liable on account of the independent or unauthorized action of other partners or for their misconduct.
• Every LLP should have at least two partners with at least two individuals as “designated partners”, of whom at least one must be resident in India. Only designated partners are responsible for compliance with the Act.
• A firm, private company or an unlisted public company can be converted into LLP.
• The Act empowers Central Government to apply provisions of the Companies Act, 1956 as appropriate, by notification with such changes as deemed necessary, in the LLP Act, 2008.
• The winding up of LLP is either voluntary or by the High Court.

Procedure

• Step 1: Obtain DSC
• Step 2: Apply for DIN
• Step 3: Name Approval
• Step 4: Incorporation of LLP
• Step 5: File LLP Agreement

Partnership Firms

Meaning

A partnership is a very common form of business organisation. Especially in India, partnership firms are generally finding favour when the business is medium scale. So it is important that we learn about the Partnership deed and the registration of such deeds.

Features

Partnership Deed

Now a partnership is when two persons form an association to carry out a business with the motive to earn profits. They share the profits from such a business. Such an association will be voluntarily entered into by the partners based on an agreement between them.

Such an agreement between partners can be written or can even be oral. However, it is strongly advised for legal and practical purposes that such an agreement or contract be in the written form. And this written agreement between partners to form a partnership firm is what we call a Partnership Deed.

Contents of Partnership Deed

This partnership deed will contain all the conditions and the legalities of the partnership deed. It will provide a guiding basis for all future activities. And in case of a dispute or legal proceedings, it can also be used as evidence. A general partnership deed will contain the following information,

• The agreed name of the Partnership Firm. Please note that such a name cannot have the words “company” or “private company” in it.
• The nature of the business will also be mentioned in the deed
• Date of commencement of such business
• The place of business, i.e addresses of main office or branch offices if any, where communication can be sent
• The duration of a partnership if it is a partnership for a specific purpose or time. If it is a partnership at will then no such duration will be mentioned
• Contribution to the capital of all the partners
• Profit sharing ratio. However, if no ratio is given it is assumed that the profit is shared by all the partners equally.
• Salary of all active partners
• Interest on contribution and the interest on drawings (must be according to the provisions of the Indian Partnership Act 1932)
• Terms and conditions of the retirement or expulsion of a partner, and the terms to continue the partnership after such an incident
• The day-to-day functioning of the firm and the distribution of the managerial duties among the partners
• Preparation of the firm’s accounts and the provisions for internal and statutory audit
• Procedure for voluntary or forced dissolution of the firm
• Guidelines for solving any disputes and arbitration process to be followed

Procedure

Registration of Partnership

As per the Partnership Act 1932, it is not compulsory to register a partnership firm. The firm does not have a separate legal identity and registration will not alter this fact. However, registration is the definite proof of the existence of the firm and its legality

Proprietary Concern

Meaning & Features

As the name suggests, it is a business entity formed in the name of a single person. That person owns the business, manages it and controls the various operations. It can simply be formed by any person who wants to start a business without going through various legal formalities. The Sole Proprietor must be a Citizen and Resident of India.

Procedure

There is no such specific legal registration under any law to set up a Sole Proprietorship. But, one can apply for a few registrations or licenses under various laws to avoid any complicated scenario.

These are some of the registrations/licenses that may be opted by the Sole Proprietor:

• Registration under GST (Goods and Service Tax) – It is required in case the turnover of the business exceeds specified limit. The limit is ₹ 40 lakhs for supplier of goods and ₹ 20 lakhs for service providers (limit is ₹ 20 lakhs and ₹ 10 lakhs, respectively for specified States).
• Registration under the Shop and Establishment Act: It is required by the local laws prevailing in the area where Sole Proprietorship is located
• Registration under the MSMED (Micro, Small and Medium Enterprises Development) Act– It is required in case of Micro, Small and Medium Enterprises.

AOPs/BOIs

Meaning

Association is Persons (AOP) means a group of people who comes together to achieve a common objective with same mind sets. Members in the AOP can be natural (Human beings) or artificial (Artificial Persons-e.g. company, LLP, etc.)

Body of Individuals (BOI) means a group of INDIVIDUALS (Human Beings) who come together to achieve a common objective.

Features

Only difference between the AOP and BOI is that its members composition. AOP/BOI can be formed by simply entering into a deed which contains objectives, names of members, share of members in profits, date of formation, its rules, byelaws, frequency of meetings of members or managing persons, powers of the management, the amount of capital introduced by the members if any etc., The deed can be registered with the registrar of society by paying the applicable fees.

There is no separate governing body for the both the AOP and BOI, they are self-driven with natural law of justice, customs and cultures that a person usually follows in the society.

Since there is no governing body, Income tax Act 1961 included AOP or BOI under Person definition in section 2(31) for the purpose of taxing such AOP/BOI.

Procedure

Since AOP/BOI is recognized as person under section 2(31) of the Income Tax Act 1961 it has to be assessed to tax separately hence there need of Permanent Account Number (PAN) to be applied first for the AOP/BOI. Also, the PAN is required for operating a bank account.

To get PAN the Management of AOP/BOI shall fill Application for PAN i.e. in Form 49A and shall pay the prescribed fee along with application and shall submit such application along with only a Notarized Deed.

Now the management will carry on the business of AOP/BOI or work towards the common objective for which it was formed. AOP/BOI may or may not earn profit/loss as a result of the operations. In case the AOP / BOI is formed with an objective of carrying business and earning profits let us evaluate the taxation of such profit or loss.

One Person Company (OPC)

Meaning

A one person company is a company which contains exactly one member.It is a separate legal entity from its promoter and the promoter has limited liability.

Features

Corporate Body

It is a type of company that can be initiated and operated by a sole promoter with limited liability protection in the country. A One Person Company, considered as a legal entity, allows easy transferability of ownership and does not end until dissolved. Also in the event of any legal case, the company would be liable and not the individual.

Minimum Capital not require

In order to start a One Person Company, a minimum capital amount is not required. The company can be started as per the capacity of the sole promoter.

Seamless Procedure for Registration

• The procedure to register a One Person Company is very simple which consists of the following steps:
• The Sole Promoter and a nominee are required for registering a One Person Company.
• Documents of the sole promoter and the nominee which consists of PAN Card, Bank Statement and Aadhaar Card are required.
• The Electricity Bill and the No Objection Certificate of the location where the company is incorporated are required while incorporating the company.

Procedure

Requisite Documents for a One Person Company Registration

Following are the Documents Required for Registering a One Person Company:

• (a) Identity Proof of the Director and Nominee Director
  The Permanent Account Number of the Sole Promoter and the Nominee Director are required. In addition, both the Sole Person and the Nominee must be Indian Nationals.
• (b) Residential Address of the Sole Person/Director and Nominee Director
  Documents like Passport, Driver’s License, Bank Statement, Electricity Bill that are not older than 2 months are required in order to register a One Person Company.
• (c) Proof of the Registered Office in India
  Documents like Property Tax Receipt, Electricity Bill copy, Rental Agreement or Sale Deed, No Objection Letter form Landlord in order for using the premises as registered office.
• (d) Signed Documents of Company Incorporation
  The Signed Digital Signature Application Documents (hard copy), soft copy of signed incorporation documents need to be uploaded.
• (4) Requisite Documents
  The One Person Company also has to prepare the following documents which are required to be submitted to the Registrar of Companies:
• (i) The Memorandum of Association (MOA) – It is a document which is prepared during the formation and registration process of a company that states the relationship with the shareholders. It signifies the objectives for which the company has been formed.
• (ii) The Articles of Association (AOA) – It is a documents which mentions the by-laws of the company operations.
• (iii) A nominee is appointed on behalf of the sole director or promoter for performing his duties in case the sole promoter is incapacitated or dies. The sole director’s consent for the nominee to take his place at such a circumstance is considered along with his PAN Card and Aadhaar Card.
• (iv) To start a One Person Company, the sole director has to submit the Registered office proof of the proposed company along with the proof of ownership and a No Objection Certificate from the owner or the location/office premise.
• (v) The sole promoter’s affidavit and consent of Form INC-9 and DIR- 2 respectively.
• (vi) The sole promoter also has to submit a declaration from a professional authority which certifies that the company has met all the compliances.

Section 8 Company

Meaning

Indian Trusts have no central law; Indian Societies have different legal and institutional frameworks from state to state while Section 8 companies have one uniform law across the country – Companies Act, 2013. It is this robust Act that regulates the formation, management and accountability of a Section 8 Company, thus making it more closely regulated and monitored than trusts and societies, and recognized all over the world.

A Non-profit Company or Section 8 Company is a Company which:

• Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
• Intends to apply its profits, if any, or other income in promoting its objects; and
• Intends to prohibit the payment of any dividend to its members.

It means that the Company cannot make a profit or income. It only signifies that the Company can earn income but the promoters are not to benefit from those profits. The profits cannot be distributed among the promoters. All incomes must be applied to promoting the object.

Still, certain exemptions and benefits have been provided for NGO or NPO u/s 8 of Companies Act 2013. Numerous Tax exemptions are also there for such companies. Even the donors contributing towards Section 8 Company are eligible to claim the Tax Exemption against these donations.

Features

• Distinct Legal Identity: Section 8 Company has a separate legal entity. Different from its members. Its legal standing is different from its members. The Company has a perpetual existence. Along with having organized operations and greater flexibility.
• Zero Stamp Duty: A Section 8 Company is exempt from the requirement of paying stamp duty on the MoA and AoA of the private or public limited company. Which is applicable for registration of other kinds of company structures.
• No Minimum Capital Requirement: No minimum capital limit has been mentioned for a Section 8 Company in India. And the capital structure may be altered at any stage as per the growth requirements of the company. This implies that it can be formed without any share capital. The funds necessary for carrying the business operations can be brought, later, in the form of donations and/or subscriptions from members and the general public.
• Name: Section 8 Company does not need to suffix Limited or Private Limited, next to its legal name. It can be registered with names that have words like Association, Society, Council, Club, Charities, Foundation, Academy, Institute, Organisation, and Federation.
• CARO: Requirements of Companies Auditor’s Report Order or CARO do not apply to this type of company.
• Tax Benefits: For Section 8 Companies in India, many tax benefits are granted.
• Credibility: Section 8 Companies are more reliable than all other forms of charitable organizations. They are governed by the Companies Act and are regulated strictly. Such as the requirement of a mandatory annual audit, or the MOA and AOA cannot be altered at any stage or situation. The rules on managing the profits and losses of the company make these companies trustworthy.
• Exemption to the donors: Those donating to a Section 8 Company are eligible for tax exemptions u/s 12A and 80G of the Income Tax Act.
• Membership: A registered partnership firm can become a member in its individual capacity and obtain Directorship.