There are several good reasons why it makes ample sense to register your company. The first basic reason is to protect one’s own interests and not risk personal assets to the point of facing bankruptcy in case your business faces a crisis and also is forced to shut down. Secondly, it is easier to attract VC funding as VCs are assured of protection if the company is registered. It provides tax benefits to the entrepreneur typically in a partnership, an LLP or a limited company. (These are terms which have been described later on). Another valid reason is, in case of a limited company, if one wishes to transfer their shares to another it’s easier when the company is registered.
Very often there is a dilemma as to when the company should be registered. The answer to which is, primarily, if your business idea is good enough to be converted into a profitable business or not. And if the answer to that is a confident and a resounding yes, then it’s time for one to go ahead and register the startup. And as mentioned earlier on it’s always beneficial to do it as a preventive measure, before you could be saddled with liabilities.
Depending upon the type and size of the business and the way you want to expand it, your startup can be registered as one of the many legal formats of the structure of a company available to you.
So let me first fill you in with the required information. The different company structures available are:
a) Sole Proprietorship. That’s a company owned and operated or run by just one individual. No registration is needed. This is the method to adopt if you want to do it all by yourself and the purpose of establishing the company is to achieve a short-term goal. But this puts you at risk of losing all your personal assets should misfortune strike.
b) Partnership firm. Is owned and operated or run by at least two or more than two individuals. In the case of a Partnership firm, as the laws are not as stringent as that involving Ltd. Company, (limited company) it demands a lot of trust between the partners. But similar to a proprietorship there is a risk of losing personal assets in any eventuality.
c) OPC is a One Person Company in which the company is a separate legal entity which in effect protects the owner from being personally liable for any losses.
d) Limited Liability Partnership (LLP), where the general partners have limited liability. LLP combines the best of partnership firm and a company and the partners are not personally liable to lose their personal wealth.
e) Limited Company which is of 2 types,
i) Public Limited Company where the minimum number of members needed are 7 and there is no upper limit; the number of directors must be at least 3 and
ii) Private Limited Company where the minimum number of people needed are 7 with a maximum upper limit of 50. The number of directors must be 2.