Nowadays, India has been growing in its startup culture, with some favorable laws made in the past few years. Starting a business in India has opened up many new opportunities, with the help of which you can take your business to the next level. However, there are certain legal requirements for starting a business in India.
You should make sure that you have all the legal documents for starting a business in India. Because, somewhat, they will be one of the pillars of your successful business.
No doubt, it is a very hectic and time-consuming process to collect all the legal documents. But no need to worry; we have brought this article to guide you thoroughly and make your work smoother and better.
Choosing The Right Business Structure And Their Required Legal Documents
It is very important to choose the right type of business structure before starting a business in India. The right business structure type will lay the foundation for a successful journey. In India, we have five different types of business structures. Get a small overview of all the business structures:
Sole Proprietorship
It is a type of business that is owned and operated by a single person. In this type of business, the person is liable for any kind of debt or obligation and is easy to control. A sole proprietorship is the easiest way to start a business, as it doesn’t require many documents and legal formalities to register.
A sole proprietorship is the best option when your capital is limited and the risk is lower. In this business structure, the owner gets to keep all of the profits.
Documents Required
Here are the documents required to register a sole proprietorship in India:
- Proof of identity: any government-issued ID card.
- Proof of address: any current bill that shows your address.
- Bank account
Registration Process and Legal Formalities
Here we have provided the registration process and legal formalities you need to do for a sole proprietorship:
- First, you should open a separate bank account for your business.
- You have to decide on a unique name for your business.
- You should register your business under the MSME Act, as it would give your business many benefits and government support.
- Next, you have to get a registration certificate under the Shops and Establishment Act where your business is located. The process varies from state to state.
- If your business turnover exceeds Rs. 40 lakh, you have to register your sole proprietorship for GST.
Partnership
You need a minimum of two partners to set up a partnership firm in India. But you have to remember one important point: a foreigner cannot be a partner in this type of business structure. In partnerships, the risks and rewards are shared by the partners.
Partners share resources, liabilities, and skills in this type of structure. A partnership deed is very important because it contains the terms and conditions for the functioning of the business, the profit-sharing ratio, and the duties and powers shared by each partner. It clearly states that all the clauses in the agreement are mutually agreed upon.
Documents Required
Now, if you choose a partnership firm as your business structure, let’s talk about the legal requirements to start a business. Here, we have listed out all the legal requirements for starting a business in India:
- Identity proof for all the partners: any government-issued valid ID card.
- Address proof of all the partners: It can be in the form of any recent bill.
- Application for registration (Form 1): This form must be filled out and submitted to the Registrar of Firms.
- A Copy of the Partnership Deed: A legal document that contains all the terms and conditions of the partnership firm.
- Proof of business address: You can provide a copy of the lease agreement or ownership documents of the place where your business is located.
- Affidavit: An affidavit certificate stating that all the details mentioned in the documents and partnership deed are correct.
Registration Process and Legal Formalities
Here is the detailed registration process needed for the registration of partnership firms:
- Select a unique name for your partnership firm.
- Fill out the application for the registration of a partnership firm.
- Then submit the application with the required documents:
- Partnership deed
- Affidavit
- Proof of identity
- Proof of address
- After verification of all the documents, you will be issued a registration certificate.
Limited Liability Partnership (LLP)
For starting business in India, a limited liability partnership (LLP) can be considered the best option. It provides the flexibility of a partnership and the benefits of a company. You have to register your limited liability partnership with the Ministry of Corporate Affairs under the LLP Act 2008.
Apart from that, in an LLP, there is no personal liability. The liability completely depends on the share capital of each partner. LLP is one of the most flexible business structures.
Documents Required
The following are the documents required for an LLP registration:
- Proof of identity- any government-issued valid identity card.
In the case of foreign partner, a passport is needed.
- Proof of address- proof of the address of all the partners
- Proof of office address- you have to provide proof of office address in the form of a lease or rent agreement.
- Utility bills- A copy of the utility bills of the registered office that shouldn’t be older than 2 months.
- NOC– A No-objection certificate (NOC) from the landlord of the property.
- Bank statement- bank account statement not older than 2 months.
- LLP Agreement- An agreement containing all the rights and responsibilities of each partner.
Required Legal Conditions
- There should be a minimum of two partners.
- One of the partners must be an Indian citizen.
- It is necessary to have at least one partner if the rest are corporate bodies.
- There is no minimum capital requirement to register an LLP.
- The LLP’s name should be a unique one.
It should have a registered office in India.
Private Limited Company
A private limited company is a private company that has limited liability for its shareholders. PLC is a small business entity that should be registered under the Ministry of Corporate Affairs. A private limited company has to maintain a record of all its transactions.
A PLC can continue to run even after the death or resignation of its Directors/ shareholders. It is one of the most flexible features of a private limited company. In this type of business structure, shares can be sold or easily transferred to other people. Like an LLP, the personal assets of a shareholder are protected from debt.
Documents Required
- Proof of identity- a copy of a government-issued identity card of all the shareholders.
- Passport- in the case of foreign shareholders, a passport is required.
- Address proof- submit the address proof of all shareholders (driving license/ passport/ Aadhaar card).
- Bank statement- the latest bank statement (not more than 2 months) of all shareholders.
- Address proof of office- submit the address proof of the registered office on any utility bills (electricity bills/ gas bills).
- NOC- A copy of the NOC from the owner of the registered office
- Rental agreement– submit the rental agreement (lease deed/ rental agreement) of the registered office.
- A passport-size photograph of all the shareholders is required.
- A specimen signature of directors only
Required Legal Conditions
Check out the conditions that you must meet to start a private limited company in India:
- There should be a minimum of two members to start a PLC.
- There can be a maximum of 200 members.
- One of the directors must be an Indian citizen.
- There is no minimum capital requirement to register an PLC.
- The registered office must be in India.
- A private limited company has a higher borrowing capacity than others.
- It can continue to exist even after the death or resignation of any of the shareholders/Directors.
- It can easily be sold or transferred.
Public Limited Company
A public limited company is not a private company, and they can sell their shares to the general public. In this business entity, they can easily trade their shares in the market. Like an LLP, the shareholders of a public limited company have minimum liability.
In a public limited company, you would need at least three directors, seven shareholders, and a registered office in India. There is no limited capital requirement for starting a company. Even if the shareholders/ directors die, the company will continue to exist.
Documents Required
Like all other business entities, there are certain legal documents required to be submitted to register the public limited company:
- Proof of identity- Submit the proof of identity of directors and shareholders in the form of any government-issued valid identity card.
- Proof of address– submit the address proof to all the shareholders and directors.
- Proof of office address– need the utility bills of the registered office that are not older than two months.
- NOC- You would need to submit the no-objection certificate from the landlord of the registered office.
- DSC- A Digital Signature Certificate (DSC) is needed for all the shareholders and directors..
- DIN- Director Identification Number (DIN) of all the directors issued by the Ministry of Corporate Affairs
- AOA & MOA- These are the documents setting out all the rules and regulations of the company.
Registration Process and Legal Formalities
After collecting all the legal requirements for starting a business in India, let’s proceed to check the registration process:
- Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) from the MCA for all the directors and shareholders.
- Choose a unique name for the company.
- You have to fill out the forms (which include the MOA, AOA, and Form INC-22) with the Registrar of Companies (ROC).
- Submit the form and all the above-mentioned legal documents.
- Submit the fees to the Registrar of Companies.
- Once all your documents are verified, it will issue a certificate of incorporation.
Conclusion
Lastly, we have mentioned all the legal documents and things you need to start a business. Whichever business structure you choose, just remember to meet all the legal requirements to start a business. Also, it would be a better option to seek legal advice from a professional who can guide you thoroughly in the process. No doubt, seeking legal help will help you thrive best in the Indian market and bring the best from your business.
