Shareholding Pattern: Meaning, Types & Why It Matters for Investors

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

Procedure for Conversion into a Public Limited Company

Converting a private limited company into a public limited company in India is governed by the Companies Act, 2013, and involves a formalised legal process. Here’s a step-by-step guide:

1. Convene a Board Meeting

• Pass a board resolution to approve the proposal for conversion.
• Approve amendments to the Memorandum of Association (MoA) and Articles of Association (AoA).
• Schedule an Extraordinary General Meeting (EGM) for shareholder approval.

2. Issue Notice for EGM

• Send notices to all shareholders, directors, and auditors at least 21 days before the meeting.
• The notice should include the agenda, draft resolutions, and explanatory statements.

3. Hold the Extraordinary General Meeting (EGM)

• Pass a Special Resolution to approve the conversion from private to public.
• Approve necessary alterations in the MoA (removal of “Private”) and AoA (removal of restrictive clauses on share transfer and member limits).

4. Filing with Registrar of Companies (RoC)

Submit the following forms with the Ministry of Corporate Affairs (MCA) portal:

• MGT-14: Filing of special resolutions within 30 days of passing them.
• INC-27: Application for conversion, along with certified copies of resolutions, amended MoA/AoA, and EGM minutes.

5. Scrutiny and Approval by RoC

The Registrar reviews the application and, upon satisfaction, issues a Fresh Certificate of Incorporation reflecting the change in company status from private to public.

Related Read: Private Company Vs Public Company: Key Differences Explained

Post-Conversion Requirements

Once the company has been converted into a public limited company, several post-conversion formalities must be completed to align with regulatory and operational standards:

1. Update Statutory Documents

• Obtain a new PAN reflecting the updated company name.
• Revise all statutory records, financial statements, and company stationery (letterheads, invoices, website, etc.).

2. Inform Bankers and Financial Institutions

• Update your company’s status with existing banks and financial institutions.
• Amend authorised signatories if required.

3. Intimate Regulatory Authorities

• Notify relevant authorities such as tax departments, GST authorities, and regulatory bodies, if applicable.

4. Compliance with Public Company Norms

• Increase the number of directors to a minimum of 3 (as required for a public company).
• Appoint independent directors and comply with applicable listing regulations (if planning for a stock exchange listing).
• Adhere to enhanced disclosure norms, audit requirements, and corporate governance standards.

5. Prepare for Capital Raising (Optional)

• If planning an IPO, start preparing for SEBI compliance, drafting offer documents, and engaging with merchant bankers.

Frequently Asked Questions (FAQs)

How Much Does an LLP Cost in India?

The cost of LLP registration in India depends on multiple factors, including government fees, professional assistance, and other associated charges. Here’s a detailed breakdown of LLP registration fees:

1. LLP Registration Fees

The government fees for LLP registration are based on the contribution amount:

• For a contribution of up to ₹1 lakh: ₹500
• For a contribution between ₹1 lakh and ₹5 lakhs: ₹2,000
• For a contribution between ₹5 lakhs and ₹10 lakhs: ₹4,000
• For a contribution above ₹10 lakhs: ₹5,000

2. Digital Signature Certificate (DSC) Fees

At least one designated partner must obtain a Digital Signature Certificate (DSC) to sign and file documents online. Depending on the certifying authority, the cost of a DSC typically ranges from ₹2,000 to ₹4,000 per partner.

3. Professional Fees

While registering an LLP can be done independently, most entrepreneurs prefer to consult professionals (legal advisors or company secretaries) to ensure compliance. These fees can vary widely depending on the platform.

4. Stamp Duty Fees

Stamp duty is state-specific and varies based on the LLP’s contribution amount and the location of its registered office. On average, stamp duty can range from ₹500 to ₹5,000.

5. Name Reservation Fees

Reserving a unique name for your LLP costs ₹200 per application. This step ensures your chosen name complies with MCA guidelines.

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Other Costs Involved in Registering an LLP in India

Apart from the mandatory registration fees, here are additional LLP registration charges to consider:

1. LLP Agreement Drafting Charges

Drafting the LLP agreement, which outlines the rights, duties, and profit-sharing ratios of the partners, typically costs between ₹2,000 and ₹10,000, depending on complexity and professional assistance.

2. Notarisation Charges

Once the LLP agreement is drafted, it needs to be notarised. The charges for notarisation depend on the contribution amount and the state in which the LLP is registered, averaging ₹500 to ₹2,000.

3. Late Filing Penalties

Timely filing of required forms is crucial to avoid penalties. For instance, the late filing fee for Form 3 (LLP Agreement) is ₹100 per day of delay. Budgeting for timely compliance ensures you avoid these avoidable costs.

Professional Legal Charges Involved in Registering an LLP in India

When setting up a business, time is of the essence, and navigating the registration process can be overwhelming, especially for first-time entrepreneurs. While the government fees for LLP registration are standardised, the professional fees for legal and compliance services can vary depending on your required scope of assistance.

Engaging a qualified professional may feel like an added expense initially, but it can save you significant time, stress, and potential errors in the long run.

Here’s why hiring a professional for your LLP registration is worth the investment:

• Drafting the LLP Agreement: The LLP agreement is more than just a legal document—it’s the backbone of your business operations. It defines the roles, responsibilities, profit-sharing ratios, and decision-making processes among partners. 
• Name Reservation Assistance: Choosing the right name for your LLP can be tricky. The Ministry of Corporate Affairs (MCA) has stringent guidelines to ensure uniqueness and avoid duplication.
• Digital Signature Certificate (DSC): A Digital Signature Certificate (DSC) is mandatory for designated partners to sign and file documents electronically during the registration process. Professionals assist in obtaining the DSC efficiently, ensuring you meet this requirement without delays.

At Razorpay Rize, we simplify the registration process by offering end-to-end support, covering everything from drafting agreements and obtaining DSCs to securing name reservations. 

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Our LLP package includes:

• Company Name Registration
• Digital Signature Certificate (DSC) tokens
• DSC shipping & support
• Designated Partner’s Identification Numbers (DPIN)
• Certificate of Incorporation(COI)
• LLP Agreement
• Company PAN & TAN

With our team of experts managing the legalities, you can focus on building and growing your business confidently.

Frequently Asked Questions