You have always had a great business plan and, today, you also have the necessary resources to fulfil your dream of setting it up. But, knowingly or unknowingly, there will always be minor or major hurdles in your way. We, at AST & CO., have specialised knowledge in assisting you to overcome these obstacles and to ensure a smooth and successful journey for you. If you are ensure about your legal obligations or require research into your entity-type options, let us try to answer your queries and provide you with the information you need right here.
This is the oldest and most common form of business. It is a one-man organisation where a single individual owns, manages and controls the whole business. The liability of the owner is unlimited. A Sole Proprietorship business is suitable where the market is limited, localized and where customers give importance to personal attention. This form of organisation is suitable where the nature of business is simple and requires quick decisions. This type of organisation is suitable where the capital required is limited and the risk- involvement is not great. It is also considered suitable for the production of goods which involve manual skill e.g. handicrafts, filigree works, jewellery-making, tailoring, haircutting, etc
An HUF cannot be created under a contract, it is created automatically in a Hindu, Sikh, Buddhist or a Jain Family when a person gets married. Although a HUF Deed can be signed for bank account and income tax purposes. An HUF deed is a written agreement mentioning the name of the Karta (head of the family), other family members, assets that is controlled by the HUF etc. The deed needs to be written on a stamp paper and signed by the Karta and other members
A partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by them or any of them acting for all. The owners of a partnership business are individually known as partners and collectively as a firm. In a partnership firm, persons from different walks of life, with ability, managerial talent and skill, combine to form a business. This increases the administrative strength of the organisation, the financial resources, the skill and expertise, while reducing risk. Such firms are most suitable for comparatively small businesses such as retail and wholesale trade, professional services, medium-sized mercantile houses and small manufacturing units. Generally, it is seen that many organisations are initially started as partnership firms and, later, when it is economically viable and financially attractive for the investors, it is converted into a company.
An OPC is ideal for anyone who runs a business by his or her own self, wishes to have effective control over all operations of the business and work in a corporate framework. Any entrepreneur who wants to form the company with limited liability should register for OPC.
An OPC can be registered with a minimum capital of just Rs 1 lakh. But if the paid-up capital exceeds Rs 50 lakh, then the OPC has to be converted to a private limited company. The same holds true when the OPC’s average turnover for 3 consecutive years exceeds Rs 2 crore.
A private company is a company which has the following ingredients:
A Public Limited Company is a company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the face value of the shares and the premium thereon, in respect of the shares held by him. However, the liability of a Director / Manager of such a company can, at times, be unlimited. The minimum number of shareholders is 7.
The government has passed the LLP Act, 2008 in January, 2009. This Act proposes LLP as a new corporate form of business to provide an alternative to the traditional partnership business, with unlimited personal liability on the one hand, and the statute-based governance structure of the limited liability company, on the other, so that businesses can organise themselves and operate in a flexible, innovative and efficient manner.
It is aptly said that "one-man control is the best in the world, if that man is big enough to manage everything." Although sole proprietorship business suffers from certain limitations, it has its own merits. Besides its limitations, it is suitable because it involves low capital investment, personalised services, quick decisions and flexible operations, besides being equipped to serve local needs as well as those of big businesses.
The success of the Joint Hindu Family business is mostly dependent upon the efficiency of the karta and the mutual understanding between the co-partners. Nevertheless, this type of business is losing its ground with the gradual decline in the Joint Hindu family system.
A partnership firm is suitable in the case of a business where the initial capital requirement is medium i.e. it is neither too large nor too small. In a partnership firm, partners with different abilities, managerial talents, skills and expertise combine with each partner’s contribution based on his area of specialisation and experience.
A joint stock company is suitable where the volume of business is quite large, the area of operation is widespread, the risk involved is great and there is a need for huge financial resources and manpower. It is also preferred when there is a www.esupportkpo.com Page | 5 need for professional management and flexibility of operations. In certain businesses, such as banking and insurance, business can only be undertaken by joint stock companies.
LLPs offer clear advantages over Partnership Firms and Companies for small and medium-sized businesses. A registered "Limited Company" in India (private or public) has a lot of complicated formalities, including mandatory director board meetings, auditing etc. The additional overheads in managing a Private Limited Company make LLPs attractive for small firms.
The selection of a suitable form of business organisation on the basis of ownership and management is one of the most important tasks of the entrepreneur. Once the form of organisation is chosen, it is very difficult to switch over to another form, because it needs the winding-up of the existing organisation which is a waste of time, effort and money. Therefore, the form of an organisation must be chosen after careful thought and consideration. There are a number of factors to be considered while selecting an appropriate form of business organisation. Let us look at those factors which are inter-related and inter-dependent as well:
|Private Limited Company||Limited Liability Partnership||One Person Company (OPC)||Partnership Firm||Sole Proprietorship|
|Recommended For||Start-ups and Growth Companies||Consulting Services & Professional Firms||Sole Owners wanting to run a corporate business||Traditional business for temporary period||Small traders & Shop Owners|
|Limited Liability Protection||Yes||Yes||Yes||No||No|
|Number of Members||Minimum 2 Members; Maximum 200 Members||Minimum 2 Members; No Upper limit||Only 1 Director||Minimum 2 Partners; Maximum 20 Partners||Only 1 Proprietor|
|Foreign Participation||Foreign nationals can Invest under Automatic Approval||Foreign nationals allowed to invest as per law||Director cannot be a foreign National||Foreign nationals cannot be Partners||Foreign nationals cannot start a proprietor firm|
|Ownership Transferability||Ownership is transferable by way of shares||Ownership is transferable||Ownership is transferable||Ownership is not transferable||Ownership is not transferable|
|Entity Status||Entity Status Corporate Entity||Entity Status Corporate Entity||Single Person Corporate Entity||Partner Based||Individual Based|
|Ease of Funding||Very Easy to attract funding||Possible, but not preferred||Not Possible||Almost Impossible||Impossible|
|Continuity of business beyond owners||Yes||Yes||Yes||No||No|
|Tax Advantage||High Benefits||Most efficient||High Benefits||Minimal||Minimal|
|Statutory Compliance||Relatively High||Low||Minimal||Minimal||Minimal|