How to choose the Best Business Structure in India?
There are number of business structure options available in India for the startups to choose from. In India there are large number of aspiring entrepreneurs and the existing entrepreneurs who are conducting business in the one way or other. In order to cover the maximum possible business scenarios the number of business structures options is provided in India. Under these business structures the applicant can operate and run his business successfully. Due to the wide number of options available the proprietor very often experiences the ambiguity of choosing the best suitable business structure for him. The decision of choosing a right business structure is crucial as it play a role in the success of the business.
There are number of factors to be considered while choosing the right business structure including the liability, control, capital contribution, number of members, ease of formation, compliance etc to be considered. Here in this article we will be taking the look at the multiple business structure options available in order to assist you through the selection procedure.
- Sole Proprietorship- It is the oldest and the simplest form of business entity. This type of business entity is mainly suitable for small-scale business operators. As the name suggests sole proprietorship company is owned and managed by the individual making him the sole authority to take all kind of decisions regarding the operations of the organization. Further, the taxation and accounting procedure in this form of company is much easier than other forms of companies. As a sole proprietor is not required to file a separate business tax return and all income generated from the business is reported on the personal tax form.
- Partnership Firm- The partnership firm is an association of two or more than two persons who desire to come together and carry out a business. One of the advantages of partnership firm over sole proprietorship firm is the increase in the amount of capital investment. Further, more than one owner helps to increase the skills and improves the decision-making process. In addition to this, the risk of losses will be shared by all the members in this type of company.
- Limited Liability Partnership – This type of company was introduced in India through the Limited Liability Partnership Act 2008. One of the biggest advantages of LLP over the traditional form of partnership is the presence of limited liability. The LLP formed is considered to be a separate legal entity from its members which makes the liability of the members limited to their share. Moreover, the incorporation process and the compliance process are simpler for this form of company.
- One Person Company- The concept of One Person Company (OPC) was recently introduced to overcome the various disadvantages associated with sole proprietorship form of business. Just like sole proprietor company, one person company is also owned and managed by the single owner, giving him a full control over the company. However, unlike the sole proprietorship business entity, the liability of the owner is limited to his/her contributions to the business. Further, as the company formed is a separate legal entity from its members, the life of the company does not come to an end with the death of partners.
- Private limited Company- This type of company is basically suitable for medium and large-scale business enterprises. It is a form of privately held business with minimum 2 and maximum 50 members. Some of the advantages of this form of company are that the liability of the members of this company is limited to their share. In addition to this, the disclosure requirements in case of private limited are also less as compared to private companies.
- Public Limited Company- This type of company can be formed with at least 3 directors and 7 shareholders with a minimum paid up capital of Rs 5,00,000. One of the major benefits of the public limited company is that it can offer its share to the public at large and raise funds. Further, it gives better expansion opportunities to business entities as compared to private limited companies.
After considering the above factors and discussing with the people around them they can choose the best suitable structure for them and go ahead with getting it legal registered in India.