Business blues: New company formation hits the skids

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Subscribe to enjoy similar stories. 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. There are other signs in the data that serve caution on the entrepreneurial activity front.