Selection of the right business structure is among the first steps that should be taken by entrepreneurs before starting any business venture. The business structure will determine ownership, liabilities, taxes, regulation, fund raising, decision making process, and the documentation involved in business establishment.
Knowing the types of business structures in India before registering will help entrepreneurs choose the right form based on investment, ownership needs, risks, and future plans.
What Is a Business Structure in India?
Business structure will determine the manner in which a business is registered, owned, operated, and regulated. Entrepreneurs in India can select either personal types of business structures or separate business entities such as LLP and companies.
The selection of a particular type of entity also defines the document that will be considered the primary document of incorporation. In case of a company, it will be the Certificate of Incorporation, while in the case of LLP it will be the incorporation certificate following its registration. The traditional form of partnership will be dependent on its partnership deed, and in case of registration, on the record of the registration certificate issued under the relevant state law.
The above documents should not be confused with GST/ Udyam Registrations. The document of GST Registration merely confirms the registration to GST, but does not create the entity.
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Types of Business Structures in India
The popular types of entities used in business are mentioned below.
1. Sole Proprietorship
A sole proprietorship is owned and managed by one person only. This form
of business entity suits independent professionals, consultants, small
retail shops, home-based businesses, and entrepreneurs trying a new
business concept.
The sole proprietorship lacks a separate identity from the owner. So
there is no such certificate of incorporation from MCA like Certificate
of Incorporation of Companies.
However, the owner can create the business entity through appropriate
registrations and licences in accordance with the type of business
activity and its location. These may include GST registration, Udyam
Registration, Shop and Establishment registration, a trade licence, or
any other particular registration that applies.
2. Partnership Firm
A partnership is a form of business organization created by two or more
people who agree to operate a business and distribute its profits in
accordance with the agreement among them.
A partnership deed usually includes details regarding the contribution
of each partner, their profit-sharing ratio, duties, admission,
retirement, and dispute resolution procedures.
Partnership firms mainly exist under the ambit of the Indian Partnership
Act, 1932, with registration being done through the respective state
authority. Therefore, the process of registration may vary from one
state to another.
3. Limited Liability Partnership
The Limited Liability Partnership (LLP) has features of both partnership
and limited liability. It has separate legal entity and is governed by
Limited Liability Partnership Act, 2008.
LLPs can be ideal for professional firms, consulting firm, service
business and ventures where the owners prefer flexible operation
without forming private company.
Formation of LLP is done through MCA. Name reservation and formation
of LLP is done using the form called FiLLiP form.
After the successful formation of LLP, LLP Incorporation certificate
is issued to the LLP. The LLP agreement is another document that
governs the relationship of partners.
4. Private Limited Company
A private limited company is a separate legal entity and is incorporated
under the Companies Act, 2013. It is one of the most common structures
chosen by start-ups or businesses looking for outside funding.
A private company may have shareholders and directors, and the liability
of the shareholders would normally be limited to the value of the shares
outstanding.
Incorporation of the company happens via
SPICe+ by the MCA.
According to the MCA, all companies incorporated from 23 February 2020
need to submit their name reservation and incorporation application
using SPICe+. SPICe+ Part B pertains to incorporation and also provides
other services like DIN, PAN, TAN, and GSTIN.
Certificate of Incorporation (COI) is the chief registration document
for the private limited company, and in addition, the company gets
Corporate Identification Number (CIN).
5. Public Limited Company
A public limited company is generally preferred by enterprises that want
to have a corporate form that has the ability to have more shareholders
and access to capital markets under the provisions of the law.
It has more regulatory and compliance requirements compared to the
majority of small-business structures. In addition, companies wishing
to list their securities will have to adhere to securities market
regulations in addition to company law.
As in other companies, incorporation of a public limited company happens
via the MCA process.
It is recommended that one consider a public company where the size of
business, finance needs, and mode of capital raising warrant.
6. One Person Company
This type enables a person to trade under a corporate entity as a sole
member. This would help an entrepreneur who would like to form a separate
legal entity but does not need another shareholder from the beginning.
The OPC is formed by incorporation under the Companies Act, 2013, via
the MCA incorporation procedure. Similar to other incorporated
businesses, the formation will yield a certificate of incorporation.
But the entrepreneur should also think about corporate compliance when forming an OPC rather than a proprietorship or other forms.
Business Structure in India: Comparison of Registration Documents
Registration documents required for each business structure may differ. The table below compares the various business structures in India.
Sole Proprietorship
Separate Legal Entity?
No
Registration Authority
Relevant state/local and tax authorities, depending on activity
Main Document
No single universal incorporation certificate
Partnership Firm
Separate Legal Entity?
Generally no separate legal personality from partners
Registration Authority
State-level Registrar of Firms where registration is sought
Main Document
Partnership deed and applicable registration record/certificate
Limited Liability Partnership (LLP)
Separate Legal Entity?
Yes
Registration Authority
Ministry of Corporate Affairs
Main Document
LLP Incorporation Certificate
Private Limited Company
Separate Legal Entity?
Yes
Registration Authority
Ministry of Corporate Affairs
Main Document
Certificate of Incorporation
Public Limited Company
Separate Legal Entity?
Yes
Registration Authority
Ministry of Corporate Affairs
Main Document
Certificate of Incorporation
One Person Company
Separate Legal Entity?
Yes
Registration Authority
Ministry of Corporate Affairs
Main Document
Certificate of Incorporation
This is significant since some entrepreneurs think that GST, Udyam or other certificate is equal to registration. It is not.
For instance, Udyam Registration provides MSME registration and an online certificate, but it does not change a proprietorship into an LLP or a company. The Udyam Registration Portal says that the registration is paperless, online, free, and gets permanent registration number and certificate.
Which Certificate or Document Applies to Each Business Structure?
The document relevant will depend on the nature of the enterprise.
In the case of a Proprietorship, there is usually no one universal certificate of incorporation. The entrepreneur can have GST, Udyam, Shop and Establishment, etc. Certificates.
In the case of a partnership firm, the Partnership Deed is the basic document. If the Partnership is registered, then the registration document of the partnership is used as proof of registration.
For LLP, the MCA issued Incorporation Certificate proves that the LLP is incorporated.
In the case of an OPC, a private limited company, or a public limited company, the Certificate of Incorporation would be the main document for incorporation. The CIN would also be another corporate identity indicator.
Additional registrations may be required at later dates. In this regard, GST registration would result in receiving the GST Registration Certificate and GSTIN once the application is approved. According to the GST portal, the registration certificate is issued once the concerned tax authority approves the application.
Business Registration Process in India
Although the exact process will vary depending on the structure chosen, the process of registration would involve making similar decisions.
1
Choosing the Business Structure
The first thing to do is to assess the number of owners, turnover,
capital required, liability, fundraising capability, and compliance
strength.
While a single person would prefer the proprietorship business
structure, the partnership firm would suit the two professional
individuals well. A private limited company would be the ideal
choice for the startup seeking to raise equity investments.
2
Choosing and Verifying the Business Name
Both Companies and LLPs have to abide by the guidelines laid down
by the MCA with respect to the availability of the name and its
approval.
3
Preparation of Necessary Documentation
Documents like
PAN,
Aadhaar,
or
some other identity document,
proof of address, photographs, proof of registered or business
office, and proof of ownership/authorisation could be required.
Companies and LLPs will also need a digital signature and documents
related to the directors/subscribers/designated partners.
4
Lodging of Registration Application
In case of companies, the process of incorporation will be done
using SPICe+ process of MCA. According to MCA, SPICe+ is an
integrated web form that encompasses a number of services related
to incorporation.
The process used by LLPs is FiLLiP for name reservation and
incorporation.
For Partnership Firms, the process followed will depend on the
guidelines of Registrar of Firms of the concerned state whereas
Proprietorship concerns itself with relevant registration process
for its business activity.
5
Receipt of Registration Certificate / Approval
After the application gets approved by the concerned authority,
the certificate, registration number or approval will be provided
to the entrepreneur.
In the case of a company, the certificate would be the Certificate of Incorporation. In the case of LLP, the LLP Incorporation Certificate would be provided. The approved applicant for GST will get a GST Registration Certificate and a GSTIN.
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Documents Required for Business Registration
The requirements are different based on registration and structure,
but the basic things entrepreneurs need to have in mind include:
PAN
Commonly Required For
Most business and tax registrations
Aadhaar / Identity Proof
Commonly Required For
Proprietors, directors, partners and authorised persons
Address Proof
Commonly Required For
Owners/directors/partners and business premises
Passport-size Photograph
Commonly Required For
Certain registrations
Business Address Proof
Commonly Required For
Companies, LLPs and other registrations
Rent Agreement / Ownership Proof
Commonly Required For
Where applicable for premises
Partnership Deed
Commonly Required For
Partnership firms
Digital Signature Certificate
Commonly Required For
Many MCA filings
Director / Partner Details
Commonly Required For
Companies and LLPs
Proposed Business Name
Commonly Required For
Companies and LLPs
GST-related Documents
Commonly Required For
Where GST registration applies
Bank Account Details
Commonly Required For
Depending on registration and business requirements
Always ensure the exact requirements from the government portal at hand before filling out the form.
Government Portals Used for Business Registration
Entrepreneurs need to register at government portals and avoid unauthorized sites that are not government registration portals.
The concerned body for registering a company and an LLP would be the Ministry of Corporate Affairs (MCA). The SPICe+ system of MCA would be used for company registration, while FiLLiP system of MCA would be used for LLP registration.
The portal for GST registration would be GST Portal. GST certificates can be downloaded and accessed by logging in to the taxpayer dashboard on the portal.
The Udyam Registration Portal has stated clearly that there is no charge for MSME registration and entrepreneurs should be wary of any websites that claim otherwise.
Conclusion
Choosing the right business structure in India is not only about getting the appropriate form of registration but it is much more beyond this as it will affect many issues including ownership, liability and governance and documentation that one will receive.
A proprietorship can suit a small business owned by the same person, whereas a partnership can be used in businesses run by several partners. LLPs combine partnership and limited liability, while companies are used in private and public businesses.
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FAQ’s
1. What is the most popular form of business structure for a startup firm in India?
The choice of a private limited company would usually be made if the startup plans to get external funding, involves several partners, or wants fast growth. In other cases, LLP or a proprietorship form might be more suitable for businesses that value simplicity.
2. Does a sole proprietorship get a Certificate of Incorporation?
Usually, no. A sole proprietorship doesn’t have separate legal status as an incorporated company does. Instead, the owner can get relevant registrations, such as GST, Udyam, or any other relevant business licenses, depending on the type of business.
3. What is the LLP registration certificate after registration?
The LLP would be issued an LLP Incorporation Certificate after the successful incorporation of the entity. The LLP agreement is an important document that regulates the relations of the partners in the LLP.
4. Is a GST Registration Certificate the same as the business registration certificate?
Not necessarily. This is because a GST Registration Certificate is a certificate that shows that the business or entity is registered for GST. It does not in any way create a private limited company or LLP, or any other incorporated business.
