One-person cos, LLPs drive economy formalization

While Companies Act of 2013 allowed one-person cos, LLPs have existed for a longer time

- Gireesh Chandra Prasad

India is witnessing a rise in businesses with simplified compliance requirements—such as one-person companies and limited liability partnerships (LLPs)—according to data from the ministry of corporate affairs, indicating growing formalization of the economy.

In the January-May period, 6,281 'one-person companies' were formed, 26% more than the number of such flexible business ownership structures created in the year-ago period.

April and May saw the number of such businesses rise by 56% and 36% year-on-year.

These are entities owned by one individual, which, unlike sole proprietorships, have the flexibility of limited liability of a company. This simpler company format gives solo entrepreneurs the flexibility to formalize their business, access funds, including bank loans, and keep compliance comparatively easy.

A company, on the other hand, requires a minimum of two shareholders and has to comply with more detailed regulatory requirements.