Various forms of business together with the rationale

WHAT IS A FIRM?

As far as the dictionary is concerned, the Longman dictionary says that a firm is usually a small company. If one goes by this definition, a firm is a type of company and the term is in effect a subset of the generic term company.

The definition given by the Oxford English dictionary for firm is as follows. According to the Oxford English dictionary, a firm is 'business concern, especially one involving a partnership of two or more people.'

In practice, a company could be a firm. A firm, irrespective of its size or area of operation is a business entity just like a company. Usually, the word firm is reserved for businesses providing services as is clear with the use of terms like accounting firms and consulting firms. However, there is no restriction on the usage of the word firm to be used with any company manufacturing products. There is a certain charm about the word firm that makes people adopt it to signify the business they are carrying. Somehow, the word connotes professionalism and secrecy that is not reflected by the word company. Furthermore, firms are generally sole proprietorship or a partnership firm

WHAT IS A PARTNERSHIP FIRM?

Section 4 of the Companies Act, 1956 , provides that the number of partners in a firm shall not exceed 20, and a partnership having more than 20 persons will be illegal.

The Indian Partnership Act, 1932, Section 4, defined partnership as 'the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all'.

The proprietorship form of ownership suffers from certain limitations such as limited resources, limited skill and unlimited liability. Expansion in business requires more capital and managerial skills and also involves more risk. A proprietor finds him unable to fulfil these requirements. This call for more persons come together, with different edges and start business. For example, a person who lacks managerial skills but may have capital.

Another person who is a good manager but may not have capital. When these persons come together, pool their capital and skills and organize a business, it is called partnership. Partnership grows essentially because of the limitations or disadvantages of proprietorship.

The concept of One Person Company [OPC] is a new vehicle/form of business, introduced by The Companies Act, 2013 [No.18 of 2013], thereby enabling Entrepreneur(s) carrying on the business in the Sole-Proprietor form of business to enter into a Corporate Framework. One Person Company is a hybrid of Sole-Proprietor and Company form of business, and has been provided with concessional/relaxed requirements under the Act

WHAT IS A PRIVATE LIMITED COMPANY?

A private limited company, or LTD, is a type of privately held small business entity. This type of business entity limits owner liability to their shares, limits the number of shareholders to 50, and restricts shareholders from publicly trading shares

WHAT IS A PUBLIC LIMITED COMPANY?

A public limited company (PLC) is the standard legal designation of a company which has offered shares to the general public and has limited liability. A Public Limited Company's stock can be acquired by anyone and holders are only limited to potentially lose the amount paid for the shares. It is a legal form more commonly used in the U.K. Two or more people are required to form such a company, assuming it has a lawful purpose.

A public limited company ('PLC') is a company that is able to offer its shares to the public. They don't have to offer those shares to the public, but they can.[1]

LISTED COMPANIES

Firm whose shares are listed (quoted) on a stock exchange for public trading. Also called quoted company[2]

Public Companies: Public companies are owned by a large number of members (i.e. shareholders) and transferability of shareholding between shareholders is not restricted.  Mainly these are companies which went public through initial public offering of shares and whose shares are actively bought or sold on a stock exchange, however, THIS IS NOT NECESSARILY A REQUIREMENT TO BECOMING A PUBLIC LIMITED COMPANY.

The main and the most critical difference between publicly and privately held companies is that public companies have shares that can be publicly traded on a stock exchange, or otherwise between its members. A lot of people confuse public companies as being those that are listed on a stock exchange. While all listed companies will necessarily be public limited the reverse is not true.

In fact, many companies which de-list from a stock exchange continue to be public limited companies and their shares can freely trade between shareholders, for example - Essar Steel. [3]

FIRM

Let's start the registration procedure: 4 Steps

• Step 1: Acquire Director Identification Number (DIN)...
• Step 2: Acquire Digital Signature Certificate (DSC): ...
• Step 3: Create a account on MCA Portal - New user registration...
• Step 4: Apply for the company to be registered.[4]

Step 1- Choosing the Partnership Name
Step 2- To Create Partnership Deed
Step 3- How to Register Partnership deed in India

Partnerships in India are governed by the Indian Partnership Act, 1932. As per the Partnership Act, Registration of Partnership Firms is optional and is entirely at the discretion of the partners. The Partners may or may not register their Partnership Agreement.

However, in case the partnership deed is not registered, they may not be able to enjoy the benefits which a registered partnership firm enjoys.

Registration of Partnership Firm may be done before starting the business or anytime during the continuance of partnership. However, where the firm intends to file a case in the court to enforce rights arising from the contract, the registration should be done before filing the case.

The procedure for Registration of Partnership Firms in India is fairly simple. An application and the prescribed fees are required to be submitted to the Registrar of Firms of the State in which the firm is situated. The following documents are also required to be submitted along with the application:-

1. Application for Registration of Partnership in Form No. 1
2. Duly filled specimen of Affidavit
3. Certified True Copy of the Partnership Deed
4. Ownership proof of the principal place of business or rental/lease agreement thereof.

The application or statement must be signed by all the partners, or by their agents especially authorized in this behalf. When the registrar is satisfied with the points stated in the partnership deed, he shall record an entry of the statement in a register called the Register of Firms and issue a Certificate of Registration

The Register of Firms maintained at the office of the Registrar contains complete and up-to-date information about each registered firm. This Register of Firms is open to inspection by any person on payment of the prescribed fees

Any person interested in viewing the details of any firm can request the Registrar of Firms for the same and on payment of the prescribed fees, a copy of all details of with Firm registered with the Registrar would be given to the applicant

It should however be noted that registration with the Registrar of Firms is different from Registration with the Income Tax Dept. It is mandatory for all firms to apply for Registration with the Income Tax Department and have a PAN Card.

After obtaining a PAN Card, the Partnership Firm would be required to open a Current Account in the name of the Partnership Firm and operate all its operations through this Bank Account[5]

Steps to Incorporate One Person Company (OPC)

• Step 1: Obtain Digital Signature Certificate [DSC] for the proposed Director(s).
• Step 2: Obtain Director Identification Number [DIN] for the proposed director(s).
• Step 3: Select suitable Company Name, and make an application to the Ministry of Corporate Office for availability of name. 
• Step 4: Draft Memorandum of Association and Articles of Association [MOA & AOA]. 
• Step 5: Sign and file various documents including MOA & AOA with the Registrar of Companies electronically. 
• Step 6: Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty. 
• Step 7: Scrutiny of documents at Registrar of Companies [ROC].
• Step 8: Receipt of Certificate of Registration/Incorporation from ROC[6]

Steps to Register a LLP

All designated partners of the proposed LLP shall obtain 'Designated Partner Identification Number (DPIN)'. You need to file e-Form DIN-1 in order to obtain DIN or DPIN. In case you already have a DIN (Director Identification Number), the same can be used as a DPIN.

Step 1: Application for DIN or DPIN
Step 2: Acquire/ Register DSC
Step 3: New User Registration
Step 4: Incorporate a LLP
Step 5: File LLP Agreement [7]

PVT LTD CO.

To register a company, you need to first apply for a Director Identification Number (DIN) which can be done by filing e-Form for acquiring the DIN. You would then need to acquire your Digital Certificate and register the same on the portal. Thereafter, you need to get the company name approved by the Ministry. Once the company name is approved, you can register the company by filing the incorporation form depending on the type of company

Step 1: Application For DIN

Step 2: Acquire/ Register DSC

Step 3: New User Registration To file an e-Form or to avail any paid service on MCA portal.

Step 4: Incorporate a Company Apply for the name of the company to be registered by filing Form1A for the same. After that depending upon the proposed company type file required incorporation forms listed below.

Form 1: Application or declaration for incorporation of a company

Form 18: Notice of situation or change of situation of registered office

Form 32: Particulars of appointment of managing director, directors, manager and secretary and the changes among them or consent of candidate to act as a managing director or director or manager or secretary of a company and/ or undertaking to take and pay for qualification shares[8]

Minimum Requirement of a Public Company:

• Minimum 7 Shareholders
• Minimum 3 Directors (The directors and shareholders can be same person)
• Minimum Authorized Share Capital shall be Rs. 500,000 (INR Five Lac)
• DIN (Director Identification Number) for all the Directors
• DSC (Digital Signature Certificate) for one of the Directors

1. Step 1: DSC - The basic step to company incorporation is to get Digital Signature C made of all directors.
2. Step 2: Acquire Director Identification Number
3. Step 3: Register DSC.
4. Step 4: apply for Reservation of Name [S. 4(4)]
5. Step 5: Drafting and Printing of Memorandum and Articles of Association
6. Step 6: Filing of Company Incorporation form
7. Step 7: Filing of Commencement of Business[9]

Listed Company

Step 1: Hire a business attorney who specializes in IPOs. One mis-worded statement may lead to the SEC denying your application so you want to make sure you have someone who understands exactly what is required.

Step 2: File a registration statement with the SEC, notifying the agency of your intent to go public. Have the attorney create or review the language in the statement to ensure there are no misleading or incomplete statements that could result in a denial. The registration statement states the company's existing financial status, including revenue and debt history, and declares the amount of money sought in a public offering.

Step 3: Write a preliminary prospectus that details the company history, its products and services, market share, growth potential. The prospectus must include risk disclosures to comply with SEC regulations, and maintain accurate and factual financial and operations information. Work with your attorney to make sure everything is in compliance with SEC regulations.

Step 4: Establish relationships with an underwriting syndicate, such as investment bankers and brokerage houses that will agree to purchase the securities to sell to the public. Provide the underwriting syndicate with copies of the prospectus to distribute to potential investors.

Step 5: Market the IPO with potential investors at brokerage houses and media outlets nationwide. This helps create a buzz about the stock even before the SEC has approved the IPO.

Step 6: Obtain the SEC approval by responding to all further disclosure queries by the SEC in a timely fashion, reviewing all documents with your attorney before submitting.

Step 7: Set the IPO price with the underwriting syndicate.[10]

WHY TO FORM LLP

1. The Liability of each partner is limited to his share as written in the Agreement filed at the time of creation of LLP as compared to Partnership Firms which have unlimited liability.

2. It has a Low Cost of Formation and is Easy to Form.

3. The Partners are not liable for the acts of each other and can be held liable only for their own 5/24/2016 What is a Limited Liability Partnership (LLP)? 3/8 acts as compared to Partnerships wherein they can be held liable for the acts of their partners as well.

4. Less Restrictions and Compliance are enforced on a LLP by the Govt as compared to the restrictions enforced on a Company.

5. As a Juristic Legal Person, a LLP can sue in its name and be sued by others. The partners are not liable to be sued for dues against the LLP.[11]

WHY TO FORM PARTNRSHIP FIRM

1. Easy Formation : Registration is not compulsory in the case of Partnership firm. It can be formed without any legal formality and expenses. Thus they are simple and economical to form and operate.
2. Larger Resources : Due the more number of members the partnership firm has larger resources for the business operations as compared to sole proprietorship.
3. Flexibility in operation : Due to the limited number of partners there is flexibility in the operations of business as the partners can amend any objectives or change any operations any time by mutual consent.
4. Better Management : Business of a partnership firm is very well managed by all the partners as they take interest in the daily affairs of business because of the ownership, profit and control.
5. Sharing of Risk : In partnership every partner bears the risks individually as it is easier compared to sole proprietorship.
6. In a partnership firm interest of every partner is protected against any fraud.[12]

WHY TO FORM PRIVATE LIMITED COMPANY

o Limited Liability: It means that if the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors.

o Continuity of existence: business not affected by the status of the owner.

o Minimum number of shareholders need to start the business are only 2.

o More capital can be raised as the maximum number of shareholders allowed is 200.

o Scope of expansion is higher because easy to raise capital from financial institutions and the advantage of limited liability.

o Brand Value: Company's brand value will get increased because people come to know about the company very well.

o Valuation: Since the share price reflects the company's financial healthiness it would become easy to arrive at a price in case of mergers and acquisitions.[13]

WHY TO FORM PUBLIC LIMITED COMPANY

• The shareholders have limited liability.
• A company can raise additional capital by issuing more shares or debentures.
• Greater borrowing power.
• A board of directors with experience/ expertise can be appointed.
• Shareholders can sell/transfer their shares freely[14]

WHY TO FORM A PARTNERSHIP FIRM

Ease of formation: Starting a sole proprietorship is much less complicated than starting a formal corporation, and also much cheaper. Some states allow sole proprietorships to be formed without the double taxation standards applicable to most corporations. The proprietorship can be named after the owner, or a fictitious name can be used to enhance the business marketing.

Tax benefits: The owner of a sole proprietorship is not required to file a separate business tax report. Instead, they will list business information and figures within their individual tax return. This can save additional costs on accounting and tax filing. The business will be taxed at the rates applied to personal income, not corporate tax rates.

Employment: Sole proprietorship can hire employees. This can lead to many of the benefits associated with job creation, such as tax breaks. Also, spouses of the business owner can be employed without having to be formally declared as an employee. Married couples can also start a sole proprietorship, though liability can only assumed by one individual.

Decision making: Control over all business decisions remains in the hands of the owner. The owner can also fully transfer the sole proprietorship at any time as they deem necessary.

WHY TO FORM ONE PERSON COMPANY

1. Limited Liability Protection To Directors and Shareholder

All unfortunate events in business are not always under an entrepreneur's control; hence it is important to secure the personal assets of the owner, if the business lands up in crises.

While doing business as a proprietorship firm, the personal assets of the proprietor can be at risk in the event of failure, but this is not the case for a One Person Private Limited Company, as the shareholder liability is limited to his shareholding. This means any loss or debts which is purely of business nature will not impact, personal savings or wealth of an entrepreneur.

2. Legal Status And Social Recognition For Your Business

One Person Company is a Private Limited Structure, this is the most popular business structure in the world. Gives suppliers and customers a sense of confidence in business. Large organizations prefer to deal with private limited companies instead of proprietorship firms.

Pvt. Ltd. business structure enjoys corporate status in society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, like directorship. These designations cannot be used by proprietorship firms.

3. Complete Control Of The Company With The Single Owner

This leads to fast decision making and execution. Yet he/she can appoint as many as 15 directors in the OPC for administrative functions, without giving any share to them.

4. Helps for Testing of business model and enables Funding

The OPC business helps Startup Entrepreneurs to easily test the business model, a prototype and upon building a marketable product approach Angel investors, Venture capitalists for funding and easily convert into multi shareholder Private Limited company.

5. Easy to Get Loan from Banks

Banking and financial institutions prefer to lend money to the company rather than proprietary firms. In most of the situations Banks insist the entrepreneurs to convert their firm into a Private Limited company before sanctioning funds. So it is better to register your startup as a One Person private limited rather than proprietary firm.

6. Tax Flexibility and Savings

In an OPC, it is possible for a company to make a valid contract with its shareholder or directors. This means as a director you can receive remuneration, as a lesser you can receive rent, as a creditor you can lend money to your own company and earn interest. Directors' remuneration, rent and interest are deductible expenses which reduces the profitability of the Company and ultimately brings down taxable income of your business.

7. Easy To Manage and Freedom Compliances

OPC is one of the easiest forms of corporate entities to manage. Very few ROC filing is to be filed with the Registrar of Companies (ROC). No need to conduct Annual General Meeting (AGM)

DIFFERENCE BETEWEEN COMPANIES[15]

www.mca.gov.in/Ministry/pdf/tableoffee_01042014.pdf

WHICH COMPANY IS GOOD FOR WHOM[16]

Role and need of company secretary under Companies Act 2013

The present Companies Act has strengthened the role of company secretaries. Some of the key areas that have directly impact the role of company secretaries in employment or in practice due to this Act are as follows:

1. Introduction of secretarial audit

Secretarial Audit is the process to check whether the company is adhering to the legal and procedural requirements and a process to monitor the company's compliance with the requirements of the stated laws. The objective behind the introduction of secretarial audit is to improve corporate governance and compliance.

According to Section 204 of the Companies Act 2013, it is the duty of the Company Secretary in practice to perform secretarial audit of every listed company and any such other class of prescribed companies. The Central Government has prescribed the such other class of prescribed companies as-

• Every public company with a paid-up share capital of Rs. 50 Crore or more.
• Every public company with a turnover of Rs. 250 Crore or more.

2. Secretarial standards

The objective behind the formulation of secretarial standards is to integrate, harmonize and standardization of diverse secretarial practices. The Companies Act, 2013 under Section 118 has made the compliance of Secretarial Standards compulsory on meeting of the Board of Directors and on general meetings.

3. Annual return

Annual return is a comprehensive document contains information regarding share capital, directors, shareholders, changes in directorships etc about the company. Under the old Companies Act of 1956 the annual return of the listed companies are required to be signed by the company secretary in practice. The new Companies Act, 2013 under Section 92 has widened this requirement by providing that annual returns of companies having such paid up capital and turnover to be signed and certified by the company secretaries in practice.

4. Appointment of whole-time key managerial personnel

Under Section 203 of the new Companies Act, 2013, the companies has to compulsorily appoint the whole time Key Managerial Personnel in respect of certain class of companies as prescribed by the Central Government to ensure good corporate governance and regulation. The company shall have the following whole-time Key Managerial Personnel (KMP):

• Managing Director, or Chief Executive Officer or manager and in their absence, a whole-time director.
• Company Secretary.
• Chief Financial Officer.

So this made the appointment of whole-time Company Secretary mandatory for better efficiency.

5.  Functions of company secretary

According to Section 205 of the Companies Act, 2013 the Company Secretary shall discharge following functions and duties, this is the first time that the duties of the company secretary have been specified in the company law:

• To report to the Board about the compliance with the provisions of this Act.
• To ensure that the company complies with the applicable secretarial standards.
• To provide to the directors of the company the guidance they require in discharging their duties, responsibilities and powers.
• To facilitate the convening of meetings and attend Board, committee and general meetings and maintain the minutes of these meetings.
• To obtain approvals from the Board, general meeting, the government and such other authorities as required under the provisions of the Act.
• To assist the Board in the conduct of the affairs of the company.
• To assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices[17]

WHAT IS THE RECENT TREND IN INDIA

LLP and Private limited Companies are in demand. Here is why

• In case of LLP as the name itself says that it's a partnership but has a limited liability.
• Also LLP is easy to register.
• No strict rules apply to LLP.
• In case of Private Limited Company it is more trustworthy for its members as it performs its functions according to some regulations.

The author can also be reached at whitecollarlegal@gmail.com

• [1] http://www.tutor2u.net/business/reference/public-limited-companies

• [2] http://www.businessdictionary.com/definition/listed-company.html#ixzz49ZFxywIC

• [3] http://www.blog.sanasecurities.com/private-public-public-listed-companies/

• [4]http://www.indianweb2.com/2013/07/12/how-to-register-a-companystartup-in-india/

• [5] http://www.myonlineca.in/startup-blog/how-to-register-your-partnership-firm-in-india

• [6] http://www.onepersoncompany.in/

• [7] http://www.mca.gov.in/LLP/RegisterNewComp.html

• [8] /forum/private-limited-company-registration-procedure-203783.asp

• [9] http://taxguru.in/company-law/procedure-formation-private-public-company-india.html

• [10] http://smallbusiness.chron.com/listed-stock-market-3394.html

• [11] http://www.charteredclub.com/what-is-a-limited-liability-partnership-llp/

• [12] http://www.careerride.com/fa-partnership-firms-advantages-disadvantages.aspx

• [13] http://businesssetup.in/blog/view/Advantages-and-Disadvantages-of-a-Private-Limited-Company

• [14] http://www.company-formation.co.in/public-limited-company/

• [15] http://www.millerrosenfalck.com/2013/04/differences-between-private-limited-companies-and-public-limited-companies/

• [16] http://trak.in/tags/business/2015/01/16/types-of-business-incorporation-llc-opc/

• [17] Role of a Company Secretary under Companies Act 2013 - iPleaders http://blog.ipleaders.in/company-secretary-as-per-companies-act-2013/#ixzz49eQaM6mo

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