Business Blues: New Company Formation in Trouble

Business Blues: New Company Formation in Trouble

2024-10-27 14:04:45 :

Has the pace of new company registrations with the government, a measure of entrepreneurial sentiment and activity, declined? September marked the third consecutive month of fewer new company registrations compared with the same period in 2023. Data from mid-October suggests the downward trend may extend into four months.

This weak growth contrasts with the overall trend since the covid-19 pandemic, when new company formations have continued to grow and move towards a higher trajectory. This is a result of entrepreneurial activity and compliance needs arising from the expanded scope of Goods and Services Tax (GST).

New company registrations in the first nine months of 2024 (January to September) are still 12% higher than the same period in 2023. But this is only the result of activity in the first three months of 2024 and the following months, which shows a downward trend.

There are other transformations, too. It is worth noting that more limited liability partnerships (LLPs) are being established. A limited liability partnership is an alternative business structure to a private limited company. They face fewer regulatory requirements. Limited liability partnerships are ideal for businesses that are small and do not require external funding.

From January to September 2024, LLP registration volume increased by 39% compared with January to September 2023. As a result, the proportion of LLPs in total registrations (corporations plus LLPs) has increased from 20-25% in previous years to 25-30% in 2024.

capital commitments

There are other signs in the data that point to caution when it comes to entrepreneurial activity. One of these is paid-in capital, or the capital that shareholders put into the company on day one. The greater the paid-in capital, the greater the financial commitment and thus the ambition of the business. Older government regulations set the minimum paid-in capital at $1 lakh, but this basic provision was removed in 2015.

Most new companies are formed with levels of paid-in capital as high as $100,000. Over the past six years, as the total number of registered companies has increased, the share of companies with paid-in capital has also increased $100,000 – increasing from approximately 72% in 2019 to approximately 83% in 2024. The concern, however, is that in areas with higher paid-in capital and greater and more serious business intentions, the number of new companies will either taper off or decline between 2022 and 2024.

negative state

The sharp decline in company registrations in 2024 occurred in the second quarter of the financial year 2024-25, i.e. July, August and September. A breakdown of the state-level data shows that the declines are across state lines and often reach double digits. The top ten states for new company registrations all saw a decrease in the number of companies registered between July and September. Among the three states with the highest number of registrations, Maharashtra fell by 13.2%, Uttar Pradesh by 16.5% and Delhi by 14.9%.

Only two states (Andhra Pradesh and Manipur) saw an increase in registrations compared to the July-September 2023 period. In both states, certain factors were at work during this period. Andhra Pradesh saw a new political group come to power in May 2024 after state elections, while Manipur fell into unrest in May 2023.

area dent

A similar situation occurred in the top 50 regions with the highest number of company registrations between July and September 2024. Among these 50 regions, only nine regions saw a year-on-year increase in registrations, while two regions had the same number of registrations as in the previous period. The remaining 39 experienced declines. Nine of the top ten districts in terms of registrations saw a decline during this period, with Ahmedabad being the exception. Delhi saw a decline of about 15%, Bengaluru 17% and Mumbai 13%.

Additionally, for 26 of the 50 regions (including the top five regions by registrations), the July-September 2024 numbers are the lowest in the past five years – a period that shows new company growth ​​​​​​​​​​​​​​​Establish an overall growth model. Departmental comparisons are not possible with the Ministry of Corporate Affairs data. The latest quarterly results from Indian companies showed slower revenue and profit growth. In this case, attention should be paid to the registration numbers of companies and limited liability partnerships.

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