Are you thinking about starting your own business? It’s a good thing you stumbled upon this article because employing the right business structure is one of the most important factors determining the success and longevity of a business.
Choose Right Business Structure
A business structure is how a business is organized in terms of its legal status. In India, a business structure is the legal formational outline of an organization, and it serves as the primary determinant of the scope of activities that a business can undertake, such as methods of increase in Authorized Share Capital, level of accountability for business commitments, and the amount of taxes that the organization pays to tax bodies. Organizing a business is very important, be it any business like a Petrol Pump Business or any other business for that matter.
In this blog post, we’ll be examining the different types of business structures in a way that makes it easier for you to know which subtype of the Company Structure in India suits your needs and aspirations best.
Types of Business Structure
Sole Proprietorship |
Pros of Sole Proprietorship
- Easy to set up
- Minimal compliance
- Tax advantages
- Limited governmental interference.
Cons of Sole Proprietorship
- Unlimited liability
- Hindrances to raising capital
- No perpetual succession
- Lack of professional appearance.
The Sole Proprietorship is the most basic business structure because it just involves one individual who owns and operates the business. If you prefer to work alone, this arrangement may be ideal for you. The tax advantages of a sole proprietorship are particularly enticing because the business’s expenses and revenues that include in the owner’s personal income and tax according to the relevant bracket it falls under. This is in contrast to companies, which are subject to a flat rate of income tax.
Partnership |
Pros of Partnership
- Sharing of startup costs and other liabilities
- Sharing of business risk
- Greater infusion of capital from partners
- Sharing of responsibilities and other burdens
- Lesser paperwork and compliance burden.
Cons of Partnership
- Sharing of profits
- Loss of total control over the business
- Joint liability
- Delays in decision-making due to red tape.
When there are two or more business founders, the partnership options include a partnership firm or a LLP Registration In India. While the former suffers from the flaws of unlimited liability, the latter enjoys the benefits of limited liability protection. One of the key advantages of joining a partnership is that it obtains favourable tax treatment. A partnership does not pay taxes on its income, but any earnings or losses are ‘passed through’ to the various partners as income.
We recommend choosing the partnership firm if you are running a small business like running an Agriculture Business with minimal debts or liabilities. An LLP, on the other hand, is most preferable for those professional and advising firms that do not require equity capital but will have a considerable amount of debts and liabilities.
Limited Company Structure |
Pros of Limited Company
- Maximum fundraising capabilities
- Limited liability
- Professional status
- FDI possibilities
- Uninterrupted existence
- Tax-efficient.
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Cons of Limited Company
- Heavy compliance burden
- Complicated to set up
- Adherence to extensive bookkeeping formalities.
A limited company is its own legal entity. Companies have shareholders or owners, who buy a stake in the company. Directors of such companies can just be company employees or they can be shareholders as well. A company’s finances are distinct from those of the shareholders and are taxed according to a rate prefixed by the government. Likewise, all profits of a company are owned by the corporation itself, which pays taxes on them, distributes a portion to shareholders as dividends, and keeps the remainder as working capital.
There are three subtypes of the limited company structure in India namely,
- Private limited company
- One person company
- Public limited company
A public limited corporation is one that is listed on a recognized stock exchange and whose securities are publicly traded. A PVT ltd company, on the other hand, is not publicly traded and its securities are held privately by its members. A one-person company is a hybrid of a sole proprietorship and a corporation. Similarly, there is a heavier standard of compliance burden levies on public limited corporations in comparison to Private Limited Company Letterhead and OPC’s.
If you wish to devise your Unique Business Ideas on a small-medium scale only, the private limited structure is preferable. Additionally, if you wish to have a prominent global or nationwide presence and want to capture a large market share, the public limited structure is preferable. Moreover, an OPC on the other hand renders opportunities for those sole owners and individual businesses that can benefit from limited liability and the recognition of its legal status.
You are no longer concerned about coming up with a firm name. To find a list of available firms, use the Vakilsearch Business name generator.Choose Right Business Structure – Conclusion
Now that you’re briefed on the definitions of the various business structures, the different available types of business structures: https://www.mca.gov.in/MinistryV2/incorporation_company.html operational in India, and the pros and cons of each, you will be able to make an informed decision on which one is most suitable for your business needs and aspirations.
If you’re still confused or have some apprehensions about which structure might work best for your business plans, get in touch with Vakilsearch, India’s most trusted legal advisor. Further, everything from registration, annual compliance, accounting, and bookkeeping to GST Registration process can be made simple, all you have to do is hand over your worries to the experts at Vakilsearch.
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