Is the pace of registration of new companies with the government—one measure of entrepreneurial sentiment and activity—dropping off? September was the third straight month when fewer new companies were registered compared to the corresponding month in 2023. Mid-month numbers for October indicate the downward streak is likely to extend to four months.
This flagging growth is in contrast to the general trend since the covid-19 pandemic, when new company formation has seen consistent increases and moved to a higher trajectory. This was the result of both entrepreneurial activity and compliance needs brought on by the expanding envelope of the goods and services tax (GST).
New company registration for the first nine months (January to September) of calendar 2024 is still 12% higher than the same period in 2023. But this is the result of activity in the first three months of 2024 and the months since show a drop off.
Further, there are other shifts. Notably, more limited liability partnerships (LLPs) are being set up. LLPs are an alternate business structure to a private limited company. They face fewer regulatory requirements. LLPs work well for businesses that are small and don’t envisage the need for external funding.
Between January and September 2024, LLP registrations increased 39% over January to September 2023. As a result, the share of LLPs in total registrations (companies plus LLPs) has risen from 20-25% in previous years to 25-30% in 2024.
Capital commitments
There are other signs in the data that serve caution on the entrepreneurial activity front. One of these is paid-up capital, or what shareholders put into their company on day one. The greater the paid-up capital, the greater the financial commitment—and by extension, the business ambition. Older government regulations set the minimum paid-up capital at ₹1 lakh, but this base stipulation was removed in 2015.
A majority of new companies get incorporated at a paid-up capital level of up to ₹1 lakh. In the last six calendar years, amid an increase in the total number of companies being registered, there has also been an increase in the share of companies with a paid-up capital of up to ₹1 lakh—from about 72% in 2019 to about 83% in 2024. However, a matter of concern is that, in the bands of higher paid-up capital, where the business intent is bigger and more serious, the number of new companies has either tapered or declined between 2022 to 2024.
Negative state
The big drop off in company registrations in 2024 happened in the second quarter of financial year 2024-25, in July, August and September. Breaking down the data at the state level shows the drop off is across states, with the quantum often extending into double digits. Each of the top 10 states in new company registrations saw fewer companies being registered during July-September. Among the top three states with the maximum registrations, Maharashtra saw a decline of 13.2%, Uttar Pradesh 16.5%, and Delhi 14.9%.
Only two states (Andhra Pradesh and Manipur) show an increase in registrations during this period compared to the period from July to September 2023. In both states, there were specific factors at play during this period. Andhra Pradesh saw a new political formation take charge in May 2024 following state elections, while Manipur slipped into a state of unrest in May 2023.
District dents
A similar picture is seen across the top 50 districts by company registrations during the July to September 2024 period. Only nine of these 50 districts saw a year-on-year increase in registrations, while two matched their previous period numbers. The remaining 39 saw a drop. Nine of the top 10 districts by registrations in this period saw a decline, with Ahmedabad being the exception. Delhi saw a decline of about 15%, Bengaluru 17% and Mumbai 13%.
Further, for 26 of these 50 districts, including the top five by registrations, the July-September 2024 numbers were the lowest in the last five years—a period that has shown a general pattern of increase in new company formation. Data from the ministry of company affairs does not enable a sectoral comparison. The latest quarterly results from India Inc show both revenue and profit growth slowing down. In that context, company and LLP registrations numbers should be watched.
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