Once it has been decided that in which sector the business needs to be established, the next question to be pondered upon is what kind of business entity needs to be formed. The following types of business entities can be formed by evaluating the advantages the respective business entity offers to the entrepreneur. The types of business entities an entrepreneur can form are discussed below in detail.

SOLE PROPRIETORSHIP

The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

The biggest advantage is that it is easier to make both “Start and Exit” in the proprietorship form of doing business. The Proprietorship form makes sense when the entity wants to commence the business with the self-owned funds without resorting to external funding sources in the form of Equity.

 

Documents Required for a Sole Proprietorship Firm

  1. Permanent Account Number of the Proprietor
  2. Selection of Business Firm Name
  3. Address Proof for Place of Business
  4. MSME/GST/TAN registration for opening of the bank account.

 

Advantages

  1. Easy to start as its formation does not require any regulatory approval.
  2. Compliance is almost negligible.
  3. Exemption from maintaining complete books of account in case    of Income declaration under Presumptive Income Basis up to     Rs. 2 Crores.
  4. Exemption from Audit up to Rs. 50 Lacs in case of service organization and Rs. 100 Lacs in case of others or under Income declaration under presumptive basis as above.
  5. Overall Lower Cost of Operation
  6. Easy to wind up the operations if required.
  7. Tax Benefit as Sole Proprietorship does not bear any separate entity status. The Income Tax Liability is arrived after providing for available Income Tax exemption limit in the hands of the       Individual Proprietor.

 

Disadvantages

  1. Difficulty in accessing the External Finance in the form of Debt and Equity
  2. Minimal Compliance
  3. Unlimited Liability of Proprietor, even extending to personal assets.

 

Best Fit for:

  1. Generally for new Start-Up Venture looking to start the operations with self-owned money.
  2. Small organizations which cannot afford the compliance cost and issues involved.
  3. Entrepreneurs which want a complete secrecy of their financial and proprietary information.

 

 

PARTNERSHIP CONCERN

Partnership Concern is an association of two or more persons to carry on a business in the capacity of co-owners. Each such person is called a partner. All the partners share the profits and losses in proportion of their respective ownership, or as agreed between them.

Like Proprietorship firm, the Partnership also does not possess any individual legal entity on its own and therefore the liability of all partners in this case is unlimited. Likewise, all the partners are liable for any wrongdoing in the partnership firm without particular reference to individual partners.

 

How to Form a Partnership Firm – Documents Required

  1. PAN Card of the Proposed Partners along with their Address Proof
  2. Selection of Name of Partnership
  3. Address Proof for Proposed Place of Business
  4. Partnership Deed
  5. Registration of Partnership (Not Compulsory)
  6. PAN Card of Partnership Firm
  7. Statutory Registration e.g. MSME/GST/TAN etc.
  8. Open a Current Account in the name of the firm

 

Advantages

  1. Easy to start as its registration of Partnership is not compulsorily.
  2. Statutory Compliances are relatively lesser in case of Partnership Firm as compared to Body Corporate
  3. Exemption from maintaining Books of Account in case of Income declaration under Presumptive Income Basis up to Rs.   2 Crores
  4. Exemption from Audit up to Rs. 50 Lacs in case of service organization and Rs. 100 Lacs in case of others or Income         Declaration under Presumptive Basis.
  5. Relatively Lower Cost of Operation
  6. Easy to wind up the operations, if required.

 

Disadvantages

  1.  Relatively Difficult in accessing the External Finance in the form of Debt and Equity as compared to Body Corporate
  2.  The Liability of Partners for the operations of the firm is joint and several extending to personal assets also.

 

Best Fit for:

  1. Generally for new Start-Up Ventures looking to start the operations jointly with other persons with a common mind and objective.

 

 

LIMITED LIABILITY PARTNERSHIP

A Limited Liability Partnership is a newer form of business partnership where all of the owners have limited personal liability for the financial obligations of the business.

There are no general partners in a limited liability partnership, but an LLP is similar to a general partnership. Each limited liability partner contributes to the everyday business operations. However, each partner enjoys limited personal liability for the other partners’ acts.

 

Documents Required

  1. Digital Signature Certificate of the Proposed Partner
  2. Designated Partners Identification No. or Directors Identification Number
  3. Application for Name Approval
  4. Incorporation Documents along with Address Proof for Proposed Place of Business
  5. Limited Liability Partnership Deed
  6. PAN Card of Partnership Firm
  7. Statutory Registration e.g. MSME/GST/TAN etc.
  8. Open a Current Account in the name of the LLP

 

Benefits

  1. Easy to start as its incorporation formalities are lesser than companies
  2. Exemption to Audit in case of small sized entity i.e. Turnover less than Rs. 40 Lacs and Capital Contribution less than Rs. 25   Lacs
  3. The Partners in LLP are not responsible for the act of another partners unlike in case of ordinary partnership
  4. No minimum requirement of Capital.
  5. Perpetual Status of Limited Liability Partnership unless it is wound up by Partners.
  6. No Dividend Distribution tax on payment of profit to its partners.

 

Disadvantage

  1. Relatively Difficult in accessing the External Finance in the form of Debt and Equity as compared to Company as Limited Liability         Partnership cannot issue shares to its investors.

 

Best fit for:

  1. Generally for Professional set-up organization desiring to form an association with like-minded people on a profit-sharing basis.

 

 

ONE PERSON COMPANY

One Person Company is another form of doing the business in India. It combines certain attributes of Sole Proprietorship Business as well as Corporate entity. In a relatively smaller organizational set up, an owner can incorporate a One Person Company under Companies Act, 2013 which can start function with the help of single director. One Person Company saves the procedural hassles from convening Board Meeting or General Body meeting for transacting the important business of the company. However, such company have to compulsorily nominate a person as the Nominee Director in its Memorandum and Articles of association of the company who will be vested with the rights of single director and owners.

 

Documents Required

  1. Digital Signature Certificate (DSC)
  2. Directors Identification Number
  3. Application for Name Approval
  4. Incorporation Documents along with address Proof for Proposed Place of Business
  5. MOA / AOA of the company
  6. PAN Card of One Person Company
  7. Statutory Registration e.g. MSME/GST/TAN etc.
  8. Open a Current Account in the name of OPC

 

Advantages

  1. Easy to start as its incorporation formalities are lesser than other body corporates.
  2. Easy to transact the business as all administrative powers are vested with single individual.

 

Disadvantages

  1. Bar on voluntarily conversion into Private Limited / Public Limited Company within 2 years of its incorporation.
  2. Mandatory conversion into Private Limited Company or Public Limited Company in case of its breach of threshold limits i.e. Paid up share capital exceeding Rs. 50 Lacs or Average Annual Turnover exceeds Rs. 2 Crores

 

Best Fit For:-

  1. Generally for family run business to be operated by a Single Person and wishes to take benefit of separate legal entity and    limited liability.

 

PRIVATE LIMITED COMPANY

Private Limited Company has been most sought after business form of doing the business in India in Corporate Form. The Private Limited Company can be started with the participation of two or more person as director and shareholders. The compliance work in the case of Private Limited Company is more as compared to Limited Liability Partnership or One Person Company as the decisions of such corporate entity is taken through Board / General Body meeting representing the shareholder & other stakeholders authorized representation. However, its compliances and reporting and disclosures requirements are lesser as compared to Public Limited Company.

 

Documents Required

  1. Directors Identification Number
  2. Digital Signature Certificate of the Proposed Director(s)
  3. Application for Name Approval
  4. Incorporation Documents along with Proof for Proposed Place of Business
  5. MOA / AOA of the company
  6. PAN Card of Private Limited Company
  7. Statutory Registration e.g. MSME/GST/TAN etc.
  8. Open a Current Account in the name of the company

 

Advantages

  1. Most of the commonly acceptable form of business entity accepted by Investors and Other stakeholders.
  2. Less compliance as compared to Public Limited Company.

 

Disadvantages

  1. The Private Company cannot invite the Public at Large to invest in the company unlike in case of Public Limited Company.
  2. There is always a restriction on transfer of shares in the case of Private Limited Company.

 

Best Fit For:-

  1. The Entrepreneurs who would like to raise funds from Friends, Relatives etc. and intends in the form of equity share capital and intends to allot the shares against it.

 

PUBLIC LIMITED COMPANY

Public Limited company entity form of business is ideal for large corporates and compulsorily for entities which want to raise a capital from public at large through their Public Offerings. Such companies are subject to very high level of monitoring and periodic compliances. Also such companies are required to disclose their financial working in the public domain by various applicable statutory filings. For formation of Public Limited Company, at least 7 subscribers to the Memorandum and Articles of Associations are required. Further, a minimum number of 3 directors are required to form a Public Limited company.

 

Documents Required

  1. Directors Identification Number
  2. Digital Signature Certificate of the Proposed Director(s)
  3. Application for Name Approval
  4. Incorporation Documents along with Proof for Proposed Place of Business
  5. MOA / AOA of the company
  6. PAN Card of Private Limited Company
  7. Statutory Registration e.g. MSME/GST/TAN etc.
  8. Open a Current Account in the name of the company

 

Advantages

  1. Enhances the Branding of the company in the eyes of Investors, Lenders and other stakeholders

 

Disadvantages

  1. There is very high disclosure requirement for all major decisions of the entity in the public domain.
  2. Public Limited companies are required to file the complete Statutory Accounts in the public domain in the public domain.

Best Fit for:

  1. Generally for entrepreneurs wishing to raise the capital from public at large.
  2. In Projects requiring a much higher infusion of capital.

 

 

SECTION 8 COMPANY

Section 8 company is a Corporate Entity registered under the Companies Act, 2013. It is similar to the Trust and Societies as established under the relevant act. Such companies are formed for promotion of various social initiative and are not intended to make any profit on their activities. Further, the surplus if any from the operations are intended to be utilized for social and charitable purpose of such entity as incorporated in their Memorandum and Articles of Association of the company.

 

Documents Required

  1. Directors Identification Number
  2. Digital Signature Certificate of the Proposed Director(s)
  3. Application for Name Approval
  4. Incorporation Documents along with Proof for Proposed Place of Business
  5. MOA / AOA of the company
  6. PAN Card of Section 8 Company
  7. Statutory Registration e.g. MSME/GST/TAN etc.
  8. Open a Current Account in the name of the company

 

Advantages

  1. No Income Tax as Profits are exempt in view of charitable objective of the company

 

Disadvantages

  1. The Entity can only be formed for charitable or social purpose and cannot engage themselves in any commercial activity.

 

Best Fit For:-

  1. Public Welfare or social work like Commencement of Ventures like School, Colleges, Hospitals etc.

 

 

LEGALLANDS LLP consistently endeavours to get together the necessities and prerequisites of its customers and demonstrate to be a beneficiary aid as and at whatever point required. To bring more subtleties on same, contact our client assistance official today at connect@lawyer.legallands.com

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