I am sure you are confident about the venture you have chosen. However, it is equally important that you choose the right form of business type for your venture.
In last few years the government has brought in many reforms which have made it easier for the entrepreneurs to run the business with minimal cost and least compliances.
To make the most of these reforms it is important that you choose right form of business.
What is your Business about?
- Manufacturing/Trading/Logistics/Food Industry:- If you are into any of these fields, it is advisable to form a “Private Limited Company”, its biggest advantage is that you can run business as a Corporate entity and it is easier to manage large scale operations and employees in “Pvt Ltd”. Since this type of business requires huge capital, it is easier for a “Pvt Ltd” Company to raise capital from investors or financial institutions as compared to other business forms.
- E-commerce/SMEs/ Services/ Consultancy:- Limited Liability Partnership (LLP) is a hybrid of Pvt Ltd Company and partnership form of business. It provides the advantages of a Pvt Ltd Company at the cost of maintaining a partnership firm which is negligible. It is appropriate for medium size businesses looking to run the business as a Corporate minus the hassles of maintaining a Limited Company. The level of compliance required is much less compared to Pvt Ltd Company.
- Small scale business/business in a local area:- Partnership firm is suitable for this kind of business, as the cost of formation is minimal and annual compliances are negligible, making it very cost efficient to run. As the compliances are negligible, it very tax efficient too. However, it is not advisable if you intend to rapidly expand your business from a small scale to medium scale, as raising capital from investors or financial institutions are reluctant to advance capital to Partnership form of business. In such a case it is better to choose Private Limited Company or (Limited liability Partnership) LLP.
If want to run a business on small scale, you can also form a sole proprietorship firm, however this form of business has a very limited scope for expansion and is advisable only for business of a limited scale.
One Person Company (OPC):- The govt has also introduced a new form of business, as the name suggests a single person can form a seprate Company, as against other forms of business where at least two persons are required. This form of business though is not very popular as it was expected to be , mainly because of the imminent limitations put on it by Govt. i.e if the paid up capital exceeds Rs 20 lakhs or if the annual turnover exceeds Rs 2 crore, the entity looses its “OPC” identity.
The below table will further help you identify the best form of business.
COMPARISON CHART
| Category | LLP | Company | Partnership | One Person Company (OPC) |
| Suitable For | Small to medium scale and start ups | Medium to large scale and growing start ups | Small scale and start ups in nascent stage | Small scale business |
| Flexibility of doing business | Very Flexible | Not very flexible | Most flexible | Flexible |
| Tax implications | Most Beneficial | Less Beneficial | Least Beneficial | Least Beneficial |
| Requirement of Registration | Yes | Yes | Optional (Registration advised) | Yes |
| Separate legal entity | Yes | Yes | No | Yes |
| Minimum number of members / partners
|
Min 2 and max no limit | Min 2 and max 200
|
Min 2 and max 100 | Only 1 |
| Director Identification Number (DIN) | Each Partner to have one DIN | Each director to have one DIN
|
No DIN required | Requires one DIN |
| Digital Signature Certificate (DSC) | Atleast one Partner to have DSC | Atleast one Partner to have DSC | Not required | DSC required |
| Ease of Closure of business | Can be easily closed | Can be easily closed | Easiest to close | Can be easily closed |
| Accounts Audit Compliance | Less compliance than company form of business | Maximum compliance among all types of business | Least compliance | Relatively less compliance |
How can Law Tarazoo help ?
At Law Tarazoo, we can help you choose the right form of business for you and incorporate it within a few days. Just give us a call on 07977253010 and start your journey, its that simple.
