Genesis of a business entity

Genesis of a business entity

India is the fastest growing economy and a substantial recipient of foreign direct investment (FDI) globally. Among all, India shines to be the most stable economy claiming 100th spot in World Bank’s recently released Ease of Doing Business rankings. In addition to this, Make in India campaign, startup India and digital India has been a welcoming change. In order to reap the benefits of the fast growing economy, varied forms of business organizations are set up for doing business in India and are flourishing. Below mentioned is a brief connotation to incorporate an entity.

Incorporation of an entity idea suggests forming a new entity formally recognized by your state of incorporation. After establishing your business, it becomes a legal business entity distinct from the persons who formed it. These are the 3 key regions any business entity should acknowledge:

  • Distinctive element- An association should make its segments distinctive which makes it contrasting from other companies.
  • Descriptive element- This targets on type of activities and business, an entity follows.
  • Legal ending- Any constituent that proves an entity’s existence in legal terms to succeed any claim is legal ending.

An entrepreneur can choose any of the following forms to register its business in India:

  • Public limited company - It is an association holding minimum 7 members with no restriction on transferability of shares or minimum capital requirement.
  • Private limited company - It is an association possessing 2 to 200 members and an ironclad restriction on transferability of shares.
  • Company limited by guarantee - It requires no share capital or shareholders , only members who act as guarantors can take part in contributing a nominal amount at the time of winding up of the company.
  • Unlimited company - It is a company where the legal liability of the members or shareholders is not limited and incorporated with or without the share capital or shareholders.
  • Section 8 company - These are the limited companies established under the Companies Act and granted an exclusive license by Government under Section 8 association. It is a non-profit organization acquiring numerous tax benefits which are availed under Section 80G of Income Tax Act, 1961. They delight in minimal stamp duty structure and do not require much share capital. Funding for such organizations comes from subscriptions or donations made to them.
  • Limited liability partnerships (“LLP”) – In a LLP, the liabilities are limited for all partners up to an extent.

Apart from the above, following entities can also be entitled to undertake business activities in India:

  • Associate company – It is a company which provides another company a significant portion of voting shares.
  • Subsidiary company - A corporation holding more than 50% of shares in a company. It becomes part of parent company to provide parent with explicit synergies especially taxation benefits, diversified risk, equipment and property.
  • Foreign company It is an entity that is incorporated in abroad but also holds a place in domestic country by conducting any business activity in various specified manner.
  • Liaison office - It functions as a representative office primarily set up to explore and understand the business and investment climate. For establishing a liaison office in India, a profit-making track record during the immediately preceding three financial years in the home country and net worth of not less than USD 50,000 or its equivalent is required.
  • Branch office - It is a location other than head office where business is conducted. A profit making track record during the immediately preceding five financial years in the home country and net worth of not less than USD 100,000 or its equivalent is required.
  • Project office - For establishing a project office in India, the project is funded directly by inward remittance and cleared by an appropriate authority.

Following prerequisites need to be followed while establishing an entity:

  • Resilience – Align your goals with a proper configuration so as to support the growth cycle and development of the association.
  • Liability – Corporation carries least amount of personal liability, since the law holds that it is its own entity.
  • Taxation – In early stages of incorporation, avoid double taxation. You can pay personal taxes, social security and medicare, on your personal return for what you were paid throughout the year.
  • Control – A board of directors is constructed so as to keep an inspection and audit to ensure that ethics and regulations are followed accordingly.
  • Capital investment – Obtain outside or inside funding alike selling stock of shares or using personal credit.
  • Licensing – Specific licenses and permits are required to register your association at local, state and federal levels.

India is a favorable business destination globally because of its growing middle class, large pool of skilled english speaking manpower and minimal labor cost. Entirely, the concept of incorporation is advantageous to business and owners in easy transfer of ownership to another party, achieving a lower tax rate than on personal income, and receiving more lenient tax restrictions on loss carry forwards.

If you are looking forward to establish your business in India, we can offer a comprehensive range of professional services including registration process, business structuring, advisory services, tax planning and statutory compliances as per your business requirements.

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