How to decide on the Ideal Business Entity for your Startup
If you are planning on starting up your own business, your first decision will have to be on the right type of business incorporation, according to your company requirements. This is a decision your business will usually remain with moving forward, so give it a few additional hours of thought.
We have listed out a few of the most popular business types and why they make sense.
1. Sole Proprietorship
The ideal form of business organization is the sole proprietorship. In this entity, there is no difference between the individual and the firm. All the business assets considered are those of the owner. Further, all registrations regarding the business are made in the name of the owner. Income of the proprietor and the firm is also considered as one for taxation purpose.
2. Partnership Under The Indian Partnership Act, 1932
A partnership firm is distinct from the owners of the firm and they can be treated as two separate entities. This type of a firm should have a minimum of two partners and a maximum 20. The partners will then have to enter a partnership deed where their contribution to the firm, duties, etc. will be decided.
The registration of the partnership firm is optional. However, if the firm is registered, it has to be done before the local sub-registrar office. All statutory registrations will have to be handled in the name of partnership firm. With respect to taxation, income tax returns have to be filed separately i.e. separately for business transactions and the partners of the firm.
3. One Person Company (OPC) Under The Companies, 2013
One Person Company requires just one Director for its formation, making it a one shareholder corporate entity. The legal and financial liabilities are limited to only the Company and not to the Director. This entity requires a minimum authorized capital of Rs. 1, 00,000. This type of incorporation is suitable for scaling businesses and companies that will be seeking investment.
4. Limited Liability Liability Partnership (LLP) Under The Limited Liability Partnership Act, 2008
A Limited Liability Partnership (or LLP in short) is a mix of a private limited company and a partnership firm. An LLP is a separate legal entity which limits the liability of the partners to their contribution to the Company. For the incorporation of such a company, you would need two designated partners. The registered entity is required to maintain accounts and annual returns with the Registrar of Companies (ROC). All statutory registrations including taxation have to be in the name of the LLP. Income tax returns have to be filed separately for the business and Directors respectively.
5. Private Limited Company Under The Companies Act, 2013
The Private Limited Company is the most common business entity used by startups and companies. It is known for its characteristic of being a distinct legal entity. If you are getting a Private limited company incorporation, two Directors and two Shareholders are required. They are not personally liable for the acts of the Company but can be penalized or imprisoned in their official capacity. The minimum authorized capital must be Rs. 1, 00,000. All statutory registrations and taxation must be in the name of the Company.
Important Links:
| Particulars | Sole Proprietorship | Partnership | LLp | OPC | Pvt. Ltd. Co. |
| Governed by | N/A | Indian Partnership Act, 1932 | Limited Liability Act, 2008 | Companies Act, 2013 | Companies Act, 2013 |
| Registration | Service Tax/ VAT/ Trade License/ Shops & Est License | Optional | Registrar of Companies | Registrar of Companies | Registrar of Companies |
| Capital Contribution | N/A | N/A | No limit prescribed | Minimum capital of Rs. 1 Lakh | Minimum capital of Rs. 1 Lakh |
| Minimum number of Directors | N/A | Minimum 2 partners | Minimum 2 Designated Partners | 1 Director | Minimum 2 Directors |
| Liability | Unlimited | Unlimited | Limited | Limited | Limited |
For further advice on incorporating your company and or the registration process, please contact:
LawMate.in – 8007452709
Email: lawmate.in@gmail.com
Website: www.lawmate.in
Post by
By Gautami Raiker,
Founder, LawMate.in