In this blogpost, Tanvi Amlani, Student, GGSIP University and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about structuring a business, annual compliances and requirements, types of business structure in India and Africa.
Structuring a Business
Like anything else, business to requires a solid foundation on which it can then build a worldwide network of alliances and connections. And for any entrepreneur, deciding the structure of his or her business is the first step towards building that strong foundation.
Essentially, a business structure can be defined as a framework legally recognized in a particular jurisdiction, whether national or international. Considering that there are many kinds of businesses, there exist many forms of business structures that can be applied to these businesses. And the suitability of these structures also depends on your business type – the structure suitable for a startup might be entirely different from that for a firm that is expanding into the international market.
And one of the most important factors for any firm that is planning to expand internationally is to understand the risk factors associated with the various business structures. And in this, a major role is played by the current financial position of your business and the structure it is employing at present.
Annual Compliance Requirements
Before an Indian firm can plan to expand abroad, it must fulfill and meet certain compliance requirements.
The company should maintain proper records and registers annually for the complete overview of its financial status and other necessities. There are different forms for this purpose under the Companies Act 1956. Also, financial statements, Balance Sheet with prescribed annexure and schedules, auditor’s report and Board’s report of companies whose financial years commenced before 1 April 2014, need to file the report according to the rules and provisions of the Companies Act, 1956.
There must also be a confirmation with respect to the compliance of the Act and the Rules, secretarial standards thereunder with respect to calling, convening and conducting the meeting.
Let us start by understanding the kinds of business structures that exist in India and Africa at present.
Types of Business Structures (India)
At present, according to Companies Act 2013, these are the business structures that exist in India:
- Sole Proprietorship
- One Person Company
- Limited Liability Partnership
Types of Business Structures (Africa)
And the types of business structures that prevail in Africa are:
- Sole Proprietorship
- Public or Private Company
- Business Trust
- Personal Liability Company
Establishing a Business in Africa
First and foremost, anyone who is planning to establish a business in Africa must apply for a business permit. Like India, Companies Act governs all aspects of companies from formation to liquidation in Africa.
While, as explained above, there exist many ways in which a business entity may get formed, tax and other considerations from a major crux in deciding which route one takes. Private companies are, in practice, the most adopted forms of doing business.
One of the major reasons for choosing private company structure is that they require the least amount of annual formalities. Another advantage for a firm investing from abroad is that the Director (one being mandatory) need not be a national of the local country.
At the same time, the option of public company exists as well, but it is one which is used by firms only in the case when they would like to raise money from the public and open their books and business to public and shareholder scrutiny and pressure.
Foreign companies that plan to do business in Africa are known as External Companies. For them to function, they must register with the Companies and Intellectual Properties Commission within 20 business days after it first begins to conduct business.
Thus, while investing and expanding into Africa might not be a hassle, it still requires a lot of paperwork and understanding the business structures that prevail in the country. At the same time, a deeper understanding of the Companies Act of the country allows one to grasp the best business structure that would be compatible with the existing business model in India and also allow them to take their expansion further to their interests and orientations in Africa.