New Delhi: Company and limited liability partnership (LLP) incorporations hit record highs in the first five months of the fiscal despite a slowdown in the pace of increase in August, accelerating the country’s push toward a more formal economy. The surge indicates that investor confidence in India’s long-term economic growth remains intact, even though global uncertainties weigh on sentiment.
Company incorporations rose 12% year-on-year to 1,10,748 between April and August, the highest ever for the period, while LLP registrations jumped 31.1% to nearly 48,972, showed the latest corporate affairs ministry data. Also, company incorporations grew just 6.7% in August, compared with 49.5% in July and 16.3% in June. This was still higher than the 5.5% rise in May and an 8.6% drop in April, ministry data showed.
LLP incorporations rose 37.8% in August, lower than July’s 61% but higher than the rates in each of the previous three months.
The moderation in August from the July surge underscores the volatility linked to funding and business timing.
Strong economic growth, ease of doing business initiatives and reforms, such as the goods and services tax, have spurred company and LLP incorporations in recent years, expanding the economy's formal sector, analysts said. Such incorporations had hit record levels last fiscal.
Reforms driving formalization
It is no surprise that the monthly trend is uneven, since incorporations usually depend on funding cycles and business timing, said Shankey Agrawal, partner at BMR Legal. The type of structure chosen by entrepreneurs, companies or LLPs, is also interesting, he said.
“The increase in the cumulative number of companies this fiscal indicates that founders still desire scale and access to financing. The more rapid rise in the number of LLPs indicates that many smaller businesses prefer a formal structure with simpler governance,” Agrawal said.
“The important question now is how many remain compliant, file their returns on time, raise capital and carry out actual business,” he added.
While the increase in monthly incorporations has fluctuated, the cumulative growth of 12% in companies and over 31% in LLPs so far this fiscal suggests that the underlying trend remains strong, said Noorul Hassan, executive partner at Lakshmikumaran & Sridharan Attorneys.
Hassan said company and LLP formations will likely remain healthy, aided by the country’s strong growth outlook and growing preference for business formalization.
India has remained the world’s fastest-growing major economy since 2021-22, and the International Monetary Fund expects it to retain that status for at least the next two years. The economy expanded at a higher-than-expected pace of 7.8% in the June quarter despite external headwinds. In July, the multilateral body projected a growth rate of 6.4% for India for FY27 and 6.7% for FY28.
Maharashtra, Delhi and Uttar Pradesh are the top three states with the highest number of active companies, accounting for over a third of the country’s total. Incorporations are also linked to the business climate of a state.
Sustained government efforts to make it easier to do business and the improved availability of credit to units in the formal sector have also aided company incorporations in recent years, the analysts said.
The government is planning an overhaul of compliance rules to make it easier to set up or shut down businesses quickly, aligning with the country’s goal of becoming a developed economy by 2047.
Analysts said it often takes about 10-15 days to register a company and an average of two months for voluntary closure applications to get processed, reflecting improvement in recent years. But as India aims to emerge as a developed nation by 2047, it plans to implement a robust regulatory and corporate compliance system capable of handling a significant increase in filings and processing applications quickly.
Mint last week reported that the corporate affairs ministry is planning an overhaul of the compliance regime to make it easier and faster for investors to set up a company, or exit a failed one, matching the country's development ambitions.