One of the most important things for the business units to ensure their success is funds. It is crucial for the growth of business units to possess adequate funds at the all times. In India there are number of business structures options available for everyone that sometimes make it hard for the entrepreneur to choose the best option. There are number of parameters that should be considered prior to selecting the best business option for your firm. Some of the business structure options present in India includes the sole proprietorship firm, Private limited company, public company, Limited Liability partnership etc. There are number of differences among these business structures. With this blog we will be taking a look at the difference between the various business structures in India on the basis of options available to them for raising funds.
Sole Proprietorship Firm- This form of business is incorporated and managed by the individual only. There is no difference between the legal entity of the firm and the proprietor thus he himself is responsible for all the acts of the Proprietorship firm. This structure is majorly suited for the small scale business units. As proprietorship is a small scale firm there are not many options available to them for raising fund. Its proprietor is required to bring the funds for the firm or it can raise bank loan these are the only two options available to them. Also, it is hard for them to raise funds through loans as the proprietorship firm is considered as less credible form of business structure than other.
Private limited Company- It is a company structure that can be incorporated with minimum 2 and maximum 200 members. This company structure posses a separate legal entity from its members and thus protect the personal assets of the members. There are number of options by which the private limited companies can raise funds. Some of the these options include by issuing equity shares, bonus shares, share to their employees, private placements or by raising loans from financial institutions. Apart from these options a company can also raise funds through the mode of debt also.
Partnership firm – A partnership firm is formed when two or more persons desire to come together and work together on the basis of the partnership agreement executed between them. The identity of the partnership firm formed is not distinct from the partnership firm formed thus the partners are equally liable for actions of the other partners. The partners of the firm can only bring in the capital for the firm or they can raise debts for the firm.
Limited Liability Partnership – LLP is the hybrid form of structure holding the features of both the company and the partnership firm. Due to the presence of features of partnership firm the limited liability partnership cannot raise funds through equity shares. The partners of the LLP can bring in the capital for the partnership firm or the firm can also take loan from the financial institutions.
The aspiring entrepreneurs are recommended to assess all the options of raising funds by the multiple business structures and then only take a decision about the best option for them.