After covid, there has been a rapid rise of startups in India. Many budding entrepreneurs started showing interest in acquiring their own startup entity. Once the startup is registered, the question that strikes is whether the startup should be incorporated as a Private Limited Company or a Limited Liability Partnership.
The answer to this question will be discussed in this blog and give an idea of on discover which company registration is best for startup. The Startup India scheme which was introduced by our current Prime Minister of India Narendra Modi is quite helpful for startups to get developed and seek various advantages.
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Which company registration is best for Startups?
Once the startup is registered, a startup can either be incorporated into a Private Limited company or a Limited Liability Partnership (LLP). There are other two options for the incorporation as One Person Company (OPC) or Sole Proprietorship. These two options are mostly not adopted, it is because they are not that good in attracting the investment of the company also in Sole Proprietorship, the proprietor enjoys personal unlimited liability which is not appreciable.
So these are the reasons why these two options are mostly excluded and not incorporated by the startups. So, if these two are not on the list of incorporation, the rest two left are Private Limited Companies and LLP. So in these, a startup can incorporate according to its wish. Next, it will discuss the startup incorporating as an LLP and as a Private Limited Company.
Startup as an Limited Liability Partnership
LLP is one of the options for the startups to get incorporated under it, as it provides various advantages to the startups like limited liability and flexibility in the partnership firm. Basically, an LLP can enter into a contract by itself, and also it can hold or purchase the property of its own.
- There are a few disadvantages found when the startup is incorporated as LLP.
- It doesn’t matter whether the particular startup is active or not but they have to file the income tax returns annually.
- An LLP must have at least 2 partners which is difficult for the startup to carry out. Hence, it is the choice of a startup to incorporate as LLP or not.
Startup as a Private Limited Company
It is very evident nowadays that Private Limited Company is used as a go-to option in many businesses. There are chances that startups might have very tight capital investment during that time private limited companies are useful as there are no minimum capital requirements for the Private Limited Company.
Also, the great advantage is that the Private Limited Company can use the Foreign Direct Investment (FDI), and also the Private Limited Company secures the credibility of the customers which is merit for the startups. There are some disadvantages found in LLP when a startup is incorporated under it likewise here also there are some disadvantages when the startup is incorporated as a Private Limited Company.
- It has too much of compliances that are to be followed during the registration and even after the registration.
- A Private Limited Company is exempted from tax and labour laws.
Keeping this all in mind, it can be tough to take the decision of these two corporate entities when it comes to the incorporation of startups that are in India. It completely depends upon the business that the startup is carrying out and later it can decide whether to opt for a Private Limited Company or LLP.
Therefore it is very important that the startups keep all the merits and demerits of both entities and choose the proper entity wisely for the purpose of incorporation.
Conclusion
In conclusion, choosing which company registration is best for startup depends on your specific needs. Private Limited Companies offer benefits like attracting investment and limited liability but come with stricter compliances. LLPs are more flexible in structure but may not be ideal for raising capital. Carefully consider your startup’s goals and resources before making a decision.
Why waiting? 24efiling‘s team is here to simplify the company registration process and ensure accuracy.
FAQs
1. How to register a Startup software company in India?
The first step is to obtain approval from the Registrar of Companies (ROC) for the name of your firm. Then you’ll need to obtain a Company Identification Number (CIN). You must submit all of your legal documents and other legal documentation after acquiring your CIN. You must provide all necessary company information during this operation.
2. What are the documents required for a Startup Company?
• Authorization letter
• Copy of your Aadhar card
• Contact Information
• Registration Proof
• Designated Partners
• Information on Intellectual Property
3. How to register a Startup company in India?
• Create an account on the Startup India website.
• Submit an application for DPIIT (Department of Industrial Policy and Promotion) recognition after registering.
• Click here to get the Section 80 IAC exemption application form.
• Fill out all of the required information and upload the required papers.
4. Which company registration is best for a Startup?
The most common company types for startups are Private Limited Companies and Limited Liability Partnerships.
A Private Limited company is legal and frequently desired by investors. However, it has greater compliance requirements and may have a higher incorporation cost.
5. Which Startup is more profitable?
Stock trading site Zerodha, Software as a Service (SaaS) platform Zoho, e-commerce platform Firstcry, fintech business Billdesk, and a few more are among the most profitable enterprises. They produced earnings of INR 2,094 crore in FY22, INR 2,747 crore in FY22, INR 215.4 crore in FY21, and INR 245.6 crore in FY21, respectively.
6. Difference between startups and companies?
There are fewer team members to supervise, startups sometimes operate with less structure than typical businesses. Startup CEOs often spend less time organizing their staff and more time focusing on how to expand their firm. A huge corporation has more structure to assist in managing its enormous workforce.
