10 Advantages of Incorporating a Company

What is a Society?

A society is a non-profit organisation formed by a group of individuals who come together for charitable, literary, scientific, cultural, or educational purposes. Societies in India are governed by the Societies Registration Act, 1860, although many states have their own versions of the Act (e.g., Maharashtra, Tamil Nadu, etc.).

A society must have:

• A minimum of seven members to register at the state level
• An elected governing body or managing committee
• A constitution or memorandum outlining its objectives and rules

Societies are known for their democratic structure, where members have voting rights and leadership is elected periodically.

When to Consider Forming a Society?

Forming a society may be your best option if:

• You prefer a democratically run organisation with an elected management committee
• Members may change frequently or seek easy exit options
• You want a relatively simple dissolution process
• You're operating within a state jurisdiction (or planning to expand nationally with additional registrations)
  
  

Societies are particularly suited for community-driven or volunteer-based initiatives, like resident welfare associations, cultural organisations, and grassroots education or health programs.

Meaning of Trusts

A trust is a legal arrangement under the Indian Trusts Act, 1882 (or relevant state-specific Public Trusts Acts) in which a settlor (or author) transfers property or assets to one or more trustees, who hold and manage them for the benefit of specific beneficiaries.

Key roles in a trust:

• Author of the trust: The person who creates the trust and donates property
• Trustee: The person(s) responsible for managing the trust and fulfilling its objectives
• Beneficiary: The individual(s) or group for whom the trust is created

The central concept is the "beneficial interest"- the trustee has legal control of the asset, but the benefit goes to the beneficiaries. Trusts are often used in both private and public charitable contexts.

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When and Why You Might Need a Trust?

You might choose a trust if:

• You want to retain long-term control without democratic elections or rotating leadership
• Your non-profit involves family members or a small, stable group of trustees
• You need privacy, minimal external regulation, or flexible distribution of benefits
• You plan to manage property, assets, or legacy donations

Trusts are ideal for schools, hospitals, orphanages, and religious institutions, especially when the focus is on asset management and continuity over generations.

Meaning of Section 8 Companies

A Section 8 Company is a special form of non-profit company registered under the Companies Act, 2013. It is incorporated to promote commerce, art, science, research, education, social welfare, religion, or charity.

Key features:

• It must apply for a license from the Central Government
• Its profits or income cannot be distributed as dividends
• All income must be used to promote the organisation’s objectives
• The name does not include “Limited” or “Private Limited”

Section 8 Companies are highly structured, professionally governed, and seen as credible entities both by donors and government bodies.

Reasons for Forming a Section 8 Company

You should consider registering for Section 8 Company if:

• You're looking for a formal and transparent governance model
• You want to build long-term partnerships with government bodies, corporates, or international NGOs
• You're applying for CSR funds, grants, or FCRA registration
• You want to project credibility and professionalism in your operations

Section 8 Companies are ideal for large-scale non-profits, social enterprises, or organisations planning to operate across India or internationally.

Difference Between Society, Trust, and Section 8 Company

All three structures, Trusts, Societies, and Section 8 Companies, are eligible for tax exemptions under Section 12A and 80G of the Income Tax Act. They also meet the definition of "charitable purpose" under Section 2(15).

But beyond this, they vary significantly in formation, governance, compliance, and scalability. Here’s a comparison at a glance:

Each structure, Trust, Society, or Section 8 Company, has its own strengths. The right choice depends on your mission, governance preferences, funding goals, and long-term vision.

Frequently Asked Questions

What Are the Types of Business Entities?

India’s vibrant economy is home to diverse industries and entrepreneurial ambitions, necessitating a range of business entity options. From solo ventures to large-scale collaborations, the choice of business structure directly impacts a company's growth, legal compliance, tax obligations and operational efficiency.

There are different types of companies in India, ranging from individual ownership models to multi-member organisations, catering to various needs and scales. These include:

• Sole Proprietorship
  
• Limited Liability Partnerships (LLP)
  
• Private Limited Companies
  
• One Person Companies (OPC)
  
• Section 8 Companies
• Partnerships
• Public Limited Companies
• Joint-Venture Companies
• Non-Government Organisations (NGOs)

Types of Business Structures in India

India offers a variety of business structures to suit different entrepreneurial needs, scales and industries. Each structure has unique features, benefits and drawbacks, making it crucial to choose the right one based on your business goals. Let’s dive deeper into different types of businesses in India:

1. Sole ProprietorshipA sole proprietorship is the simplest and most commonly adopted business structure in India, especially for small businesses or individual entrepreneurs. It is an unincorporated business owned and managed by a single person.
   Features:
   
   • No separate legal entity; the business is considered the same as the owner.
   • Unlimited liability: The owner's personal assets are at risk in case of debts.
   • Minimal compliance: Easy to set up and operate with fewer regulations.
2. PartnershipA partnership is a business structure where two or more individuals share ownership, profits and responsibilities. It is governed by the Indian Partnership Act of 1932 and is ideal for businesses requiring diverse skill sets.
   Features:
   
   • Joint ownership and decision-making.
   • Unlimited liability for all partners unless specified otherwise in the partnership agreement.
   • No perpetual succession; the partnership dissolves upon a partner's death or withdrawal.
3. Limited Liability Partnerships (LLP)An LLP blends the advantages of a partnership with the benefits of limited liability. Introduced under the LLP Act of 2008, it is ideal for professionals or small businesses looking for a flexible yet secure structure.
   Features:
   
   • Combines the flexibility of partnerships with limited liability protection.
   • A separate legal entity from its partners.
   • Requires at least two designated partners.
4. Private Limited Companies (Pvt Ltd)A Private Limited Company is a favoured structure among startups and small-to-medium enterprises with several advantages. It is governed by the Companies Act of 2013 and allows for limited liability while offering scalability.
   Features:
   
   • Separate legal identity from its owners.
   • Limited liability for shareholders.
   • Eligibility to issue shares for raising funds.
5. Public Limited CompaniesA Public Limited Company is suitable for businesses aiming to scale operations and raise public funds through shares. A company whose shares are publicly traded, with ownership open to the general public.
   Features:
   
   • Requires a minimum of seven shareholders and three directors.
   • No upper limit on the number of shareholders.
   • Vulnerable to market fluctuations.
6. One Person Companies (OPC)Introduced under the Companies Act of 2013, an OPC caters to solo entrepreneurs seeking limited liability benefits. Simply put, a single individual owns the company while enjoying limited liability protection.
   Features:
   
   • Mandatory to appoint a nominee.
   • Limited liability for the owner.
   • Not eligible for equity funding.
7. Section 8 Companies (NGOs)Section 8 Companies are nonprofit organisations formed under the Companies Act of 2013 to promote social welfare activities. These companies focus on charitable objectives like education, healthcare or environmental protection.
   Features:
   
   • Profits cannot be distributed as dividends.
   • Tax exemptions are available under specific conditions.
8. Joint-Venture CompaniesA Joint- Venture (JV) combines two or more entities to collaborate on a specific project or goal. Partners share resources, expertise and profits while retaining their individual entities.
   Features:
   
   • Operates under a joint agreement for a specific purpose.
   • Temporary or long-term collaboration.
   • Shared financial risks.
9. Non-Government Organisations (NGOs)NGOs are entities dedicated to social welfare causes, operating independently of the government. NGOs can be structured as trusts, societies or Section 8 Companies, focusing on various charitable activities.
   Features:
   
   • Operates without a profit motive.
   • May qualify for tax exemptions.
   • Drives social change and community development.

Types of Companies Based on Size

In India, companies can be categorized based on their size, typically determined by factors such as turnover, capital investment, and employee count. Here are the main types of companies in India based on size:

Here are the main types of companies based on members:

1. Micro Enterprises

Micro-enterprises are the smallest category of companies, characterized by low investment in plant and machinery or equipment. In India, micro-enterprises are defined as those with an investment of up to Rs. 1 crore in manufacturing and an annual turnover of Rs. 5 crore.

2. Small Enterprises

Small enterprises are slightly larger than micro-enterprises but still fall within the small-scale sector. In India, small enterprises are defined as those with an investment of not more than Rs. 10 crore and an annual turnover of not more than Rs. 50 crore.

3. Medium Enterprises

Medium enterprises are larger than small enterprises but smaller than large corporations. In India, medium enterprises are defined as those with an investment of more than Rs. 50 crore in manufacturing and an annual turnover of not more than Rs. 250 crore.

4. Large Enterprises

Large enterprises are the largest category of companies, characterized by substantial investment, high turnover, and a large workforce. In India, large enterprises have investments exceeding Rs. 50 crore in manufacturing or Rs. 250 crore in services. They often have hundreds or even thousands of employees and operate nationally or multinational.

These categories are defined by the Ministry of Micro, Small, and Medium Enterprises (MSME) in India to provide various benefits and incentives to small and medium-sized enterprises (SMEs), such as priority lending, subsidies, tax exemptions, and easier access to government schemes and programs.

Types of Companies Based on Liabilities

Companies can be categorized based on the extent of liability their members or owners have. Some major types of companies based on liabilities are-

1. Company Limited by Shares

A Company Limited by Shares is a type of company where the liability of its members is limited to the amount unpaid on their shares. This means that shareholders are not personally liable for the company's debts beyond the amount they have agreed to contribute towards the shares they hold.

Companies Limited by Shares can be further classified into private limited companies and public limited companies based on the number of shareholders and other criteria.

2. Company Limited by Guarantee

In a Company Limited by Guarantee, the liability of its members is limited to the amount they agree to contribute to the company's assets in the event of its winding up. This type of company is commonly used for non-profit organizations, clubs, societies, and associations.

3. Unlimited Liability Company

In an Unlimited Liability Company, the members or owners have unlimited personal liability for the company's debts and obligations. This means that their personal assets are at risk to satisfy the company's liabilities, and creditors can pursue the members' personal assets to settle debts owed by the company.

Types of Companies Based on Listing Status

Companies can also be classified based on their listing status, which refers to whether their shares are listed on a stock exchange for public trading.

1. Listed Companies

Listed companies are those whose shares are listed and traded on a recognized stock exchange, such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE) in India.

These companies are subject to stringent regulatory requirements and disclosure norms mandated by the Securities and Exchange Board of India (SEBI). Listing provides liquidity to shareholders and enables the company to raise capital by issuing additional shares to the public.

2. Unlisted Companies

Unlisted companies are those whose shares are not traded on any stock exchange. These companies may be privately held, meaning that their shares are owned by a small group of shareholders or closely held by promoters and investors.

Unlisted companies are not subject to the same level of regulatory scrutiny as listed companies but may still be required to comply with certain statutory requirements under the Companies Act.

Types of Companies Based on Holding

Companies can be categorized based on their holding structure, which refers to the relationship between parent companies and their subsidiaries.

1. Parent Company

A parent company is a corporation that owns a controlling interest in one or more subsidiary companies. It typically holds more than 50% of the voting rights in the subsidiary companies and has the power to make decisions affecting their operations and strategic direction.

2. Subsidiary Company

A subsidiary company is a company that is controlled by another company, known as the parent company. Subsidiary companies can be wholly or partially owned by the parent company, depending on the percentage of shares held.

Subsidiary companies operate independently but are subject to the control and influence of the parent company.

3. Holdings Company

A holdings company is a company whose primary purpose is to hold investments in other companies rather than engage in operational activities. Holdings companies typically own shares in subsidiary companies and may provide their subsidiaries with strategic direction and financial support.

Unlike a parent company, a holding company does not engage in business operations of its own.

4. Affiliate Company

An affiliate company is a company that is related to another company through common ownership or control. Affiliate companies may be part of the same corporate group or have a strategic partnership with each other.

5. Associate Company

An associate company is one in which another company holds a significant but not controlling interest, usually between 20% to 50% of the voting rights. While the investing company has influence over the associate company's operations and management, it does not exercise full control.

Documents Required to Open Different Types of Business in India

Here’s a list of documents required to open a company in India:

• Identity Proof: PAN card, Aadhaar card
• Address Proof: Utility bill, rent agreement, or property papers
• Business Registration Forms: Forms based on the business type (SPICe+, FiLLiP, etc.)
• Digital Signature Certificate (DSC): For online submissions
• Proof of registered office address: NOC or Rental Agreement

Additional documents may be required based on the business type, such as MOA and AOA for companies, LLP Agreements for LLPs or trust deeds for NGOs.

Conclusion

In India, the variety of business entities ensures there’s a fit for every kind of entrepreneur—whether you're a solo dreamer with a big vision, a small team building something impactful, or an organisation driven by social change.

Each type of entity offers unique features, advantages and challenges. From the simplicity of a sole proprietorship to the robust framework of private limited companies or the flexibility of LLPs, picking the right one can make your journey smoother, protect your personal assets and set you up for growth.

Think about your business goals:

• Do you want to stay small and agile or scale into a large organisation?
• Do you need investors or want to keep it self-funded?
• Are compliance and taxes manageable?

Your answers to these questions will guide you toward the perfect fit. If you’re unsure where to start, don’t worry—many successful entrepreneurs were in the same place when they started. The key is to take it one step at a time.

Frequently Asked Questions

What is Form STK-2, and When is it Used?

Form STK-2 is prescribed under Section 248(2) of the Companies Act, 2013, allowing a company to apply for voluntary strike-off. It is used by companies that are:

• Not carrying on any business for the last two consecutive financial years, or
• Have not sought the status of a dormant company, and
• Do not have any outstanding liabilities.

For example, consider a startup that launched operations but never scaled up. Instead of continuing to maintain compliance (like audits, annual filings, and tax submissions) with no business activity, the founders can choose to file Form STK-2 and officially close the company.

What are the Benefits of Filing STK-2?

Filing Form STK-2 provides several benefits:

• Quick and cost-effective closure compared to liquidation.
• Savings on audits and compliance costs that continue even if the company has no operations.
• Faster process – usually completed within a few months.
• Protection of directors and shareholders from future penalties or liabilities.

This makes STK-2 a practical option for small companies and startups that wish to wind up smoothly.

What are the Eligibility Criteria to File STK-2?

Not every company is eligible to file STK-2. The key criteria are:

• Applicable to Private Limited Companies, One Person Companies (OPC), and Unlisted Public Companies.
• The company should have no pending liabilities and must clear all dues before applying.
• The business must not have carried on any activity for at least two consecutive years.
• Board and special resolutions (approved by at least 75% of shareholders) are mandatory.

Companies that are listed, under inspection, or involved in ongoing litigation are not eligible for strike-off.

What Documents Are Required for STK-2?

The following documents must be attached while filing STK-2:

• Board resolution and special resolution approving strike-off.
• Affidavit by directors (Form STK-4) declaring no pending liabilities.
• Indemnity bond by directors (Form STK-3), ensuring liability coverage.
• The company's latest audited financial statements.
• Directors’ PAN, Aadhaar, and digital signatures (DSC).
• Incorporation documents like Certificate of Incorporation, MoA, and AoA.

How to File the STK-2 Form? Step-by-Step Guide

Here’s a step-by-step guide to filing Form STK-2:

1. Board Approval: Conduct a board meeting and pass a resolution for closure.
2. Shareholder Consent: Obtain a special resolution with 75% shareholder approval.
3. Clear Liabilities: Pay off loans, creditors, and statutory dues.
4. Prepare Documents: Collect Forms STK-2, STK-3, STK-4, audited accounts, MoA, AoA, and ID proofs.
5. Online Filing: File Form STK-2 on the MCA portal along with attachments.
6. Pay Government Fee: ₹10,000 is payable at the time of filing.
7. ROC Review: The Registrar verifies documents and issues a public notice.
8. Strike-Off Approval: Once satisfied, the ROC strikes the company name from the register.

Voluntarily Removing Company Name using Form STK-2

Companies can voluntarily apply for strike-off by:

• Clearing all debts and liabilities.
• Passing a special resolution with the approval of at least 75% members.
• Seeking NOC/approval from regulatory bodies (if the company is under their regulation).

Effect of Removing Name from Register of Companies

Once the company’s name is removed under Section 248:

• The company is dissolved and ceases to exist legally.
• The Certificate of Incorporation is cancelled.
• The company cannot carry on any business operations.

However, directors, managers, and shareholders remain liable for any past dues, fraud, or pending obligations as if the company had not been dissolved.

Closing of Company by Filing Form STK-2

The closure process through STK-2 involves:

• ROC verification of pending liabilities.
• Publication of a public notice inviting objections.
• Striking off the company’s name from the register.
• Publishing the strike-off notification in the Official Gazette.

Once published, the company is considered officially dissolved.

What are the Consequences of Not Filing STK-2?

Failing to close an inactive company can lead to several consequences:

• Director disqualification under the Companies Act.
• Heavy penalties and fines for non-filing of annual returns and financial statements.
• Government-initiated strike-off without the company’s consent.
• Restrictions on starting new companies for disqualified directors.
• Continued obligations for tax filings and ROC compliance despite no business activity.

What Challenges Can You Face While Filing STK-2?

Some common challenges include:

• Delays in obtaining tax or GST clearance.
• Errors in affidavits or indemnity bonds.
• Issues with expired DSCs of directors.
• Non-cooperation from shareholders or directors.
• ROC objections due to mismatched or incomplete details.

What is the Cost Involved in STK-2?

The cost of filing Form STK-2 includes:

• Government fee
• Professional charges
• Notary and affidavit charges
• DSC renewal costs, if applicable