This article on ‘The ownership structure of Companies in India‘ was written by an intern at Legal Upanishad.
Introduction
A company cannot succeed just on the strength of a wonderful idea and an investment. You must select a particular structure of the company before starting a firm in India. It’s crucial to have a specific structure that ensures the firm will run smoothly In India, there are many different types of business structures in use, including sole proprietorship, partnership firms, one-person corporations, private limited companies, and public limited companies. The following article discusses the organizational structure in Indian companies.
Ownership Structure
The terms “promoters” and “non-promoters” are used to define the ownership structure in Indian firms. Founders or controlling shareholders of a firm are often referred to as “promoters,” whilst other stockholders, like minority owners, are referred to as “non-promoters.”
Forms of ownership structure
Either a single person or a group of people with similar ideals can own a firm. Let’s quickly review the three main categories into which businesses are often divided according to their owners.
- Sole Proprietorship- A company is referred to as a sole proprietorship when it is owned by just one person.
- Partnership- Anytime two or more individuals collaborate to own and manage a company, it is referred to as a partnership.
- Limited liability company- In the business world, limited liability companies are acknowledged as distinct legal entities. Limited liability firms are a broad category that includes both private and public limited enterprises.
Types of ownership structure in India
It is prudent to choose the right organisational structure for the company to derive the maximum profit. The following are the options from which one can choose the organisational structure which fits their requirements.
- One-Person Company-
As the name suggests, a one-person company only has a single member who operates as a director and is the shareholder of the same. Also described as a Private Company, it was introduced in India so that individuals can open and run the company as independent individual who bears the liabilities as well as the profit
The incorporation process does not involve many formalities and has elements such as perpetual succession and is treated as a legal person. A paid-up capital for the one-person company is a minimum of one lakh to a maximum of fifty lakh rupees.
- Limited liability company-
Limited liability partnerships must be incorporated in accordance with the Limited Liability Partnership Act of 2009. In contrast to partnership firms, an LLP’s partners are not liable for the company’s infinite debts.
Only the investments they make are subject to their accountability for losses or obligations. A limited liability partnership is viewed as existing independently of its partners in law.
It takes a minimum of two partners to launch this business. An LLP can have two or more partners, and there is no minimum capital investment required to establish one.
In contrast to a private limited business or public limited corporation, registration is less expensive.
- Public limited company-
Public limited corporations are registered under the Indian Companies Act, 2013. They have a separate identity from their owners. A public limited company is also called a joint stock company. With no limits on the number of shares, it is formed with a minimum capital of 5 lakhs rupees. In a public corporation, the shares are opened to the public.
Shares in a public limited business may be owned by the general public. The corporation must have a minimum of seven shareholders and three directors. Unlike private businesses, a public limited company may issue an infinite number of shares.
- Private limited company-
Defined under Section 2(68) of the Companies Act, a private limited company is a in which the transferability of its article of association is limited by the Act which restricts the public from subscribing to its share. Just two members and two directors are required to form it. However, there is a cap on the number of partners it can have, which is set at 200. There can only be 50 stockholders in total.
No public may be invited to apply for shares in a private corporation. Investors favor this type of business because it makes it simple for them to purchase and sell holdings. In case of a dispute arises then the proceedings will be initiated against the company and the company can as well sue in its independent capacity because under the law the company which is formed is treated as a legal person.
- NGO-
An NGO may be organised as a society, corporation, or trust. a non-governmental organisation created with the intention of carrying out initiatives to aid society at large, especially the poor. Different organisational models can accommodate them. They can raise money from the government, businesses, other foundations, or the general public.
They can be established as a trust or society under the Trust Act of 1882 or as a society under the Societies Registration Act of 1860. Even though it may accept funding from the government, a non-governmental organisation (NGO) functions independently of all governments. A non-profit organisation, or NGO, depends entirely on connectivity and reach in order to operate at the local, regional, national, or worldwide levels.
- Section 8 Company-
A group of people can establish a non-profit organisation, or NPO, to achieve cultural, religious, professional, or social objectives. The money was initially raised by the trustee members of the NPO. Being a non-profit organisation, the NPO uses any extra funds to advance its objectives rather than distributing them to its members. As required by Section 8 of the Companies Act, a license.
Tax exemption is just one of the rights that NPOs enjoy. In addition to membership organisations like sports clubs, women’s clubs, any kind of social or recreational group, public hospitals, etc., NPOs also include philanthropic organisations. A non-profit organisation, as opposed to an NGO, pursues the same goals on a smaller scale, including those related to religion, charity, science, promoting public safety, literature, education, and national or international sports.
Conclusion
A fundamental review of India’s diverse ownership structures is provided in this article. One can evaluate the company’s shareholder behaviour using information that is readily available to the public. You learn how the company gets funds for its operations. It is also made easy to choose wise investments when you can assess the company’s profitability before investing.
Reference
- Rajput Jain & Associates “kinds of business structure in India” https://carajput.com/blog/kind-of-business-structures-can-be-made-in-india/
- “difference between NPO and NGO” https://www.indiafilings.com/learn/difference-between-npo-and-ngo/
- Pulkit Jain (2017 July 27th )“Business Structure in India” https://www.legalraasta.com/business-structures