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What Kind of a Business do You Want to Start Up?

When a person decides to start a business, there are various options such as

  1. Sole Proprietorship
  2. Partnership Firm
  3. Limited Liability Partnership
  4. Joint Venture
  5. Limited Company which could be a One Person Company or Pvt Limited or Public Limited

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The choice of any particular legal structure would impact mainly the capital structure, ease of doing business, its scalability, compliance aspects and long term vision of the business.

Disadvantages of sole proprietorship

  1. The name of the legal entity cannot be preserved. Anybody can use the name.
  2. Business cannot be easily expanded
  3. Business loans from banks and financial institutions will be difficult to obtain, since there is no distinction between the business and the owner.
  4. The personal assets of the owner cannot be protected
  5. Even Though RBI has allowed foreign direct investment under approval route, it is difficult to attract equity investors to sole proprietorship.
  6. The only advantage seems to be in fewer compliances and easy to start.

Unlimited liability partnership

  1. This is governed by the partnership Act of 1932 and the partnership deed is the legal document which lays down the framework for the business. The deed should be registered and a trade licence obtained for doing business. There are certain major disadvantages if the deed is not registered.
  2. The main disadvantages are unlimited liability, difficulty in raising funds, and discord among the partners can affect the business.

Limited Liability Partnership

The advantage is that the partners have a limited liability. There are also fewer compliances as compared to a Company and the cost of formation is also less. FDI is permitted in LLPs through automatic route in sectors where 100% FDI is allowed.

Private Limited Company

Private-Limited-Company

A Minimum number of 2 shareholders and 2 directors are required to form a Pvt ltd Company.( however the directors and the shareholders can be the same person) A big advantage is the liability of the members is limited to the amount contributed towards its share. There are certain steps to be followed for incorporation of a Company including obtaining a digital signature and a director identification number.

For the Assessment Year 2016-17 and 2017-18, a domestic company is taxable at 30%. However, for Assessment year 2017-18, tax rate is 29% if turnover or gross receipt of the company does not exceed Rs. 5 crore.

Before opting for any particular form of business, an understanding of the advantages, disadvantages, legal compliances and method of accounting that would be followed would help in making it a success.

We would be glad to help answer any questions that you might have, please feel free to email or call us.

 

 

 

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