Starting up a Business?
When setting up your business, the first and foremost thing that strikes the mind is the structure of business and how to start it without involving oneself into hassle of compliances. It’s a promising idea to look well into the future and examine the cost of starting a business, the growth prospects, profit sharing etc. There are many factors on which such decision depends and each onehold a significant importance.
The word ‘Sole’ means ‘single’, and ‘Proprietorship’ means ‘ownership’. So Sole proprietorship is a single ownership form of business. This form of business is generally used by unorganized sectors. Only a single person shall be the owner of the business and he is solely responsible for bringing in the capital and taking risks. All the profits earned is his and he is responsible for all the losses. There is no specific mechanism for registering Proprietorships. However, registration under GST and procuring various licenses depending upon the nature of business would be in the name of the Proprietor.
Why Sole Proprietorship?
Sole proprietorship form of organization is generally for the ones who want to start up their business at a very small level by investing lesser amount of capital and anticipating lower level of risk. The owner of this form of organization uses his own intelligence and management skills.
• Ease of Formation.
• No day to day regulatory compliance.
• Complete control over the business decisions.
• No sharing of profits.
• No corporate tax payments.
• The liability of owner is unlimited i.e his personal property may get attached to pay the debts in case of any unforeseen contingency.
• This form of organization comes to end on the death of the owner.
• The major constraint in sole proprietorship business is difficulty in raising funds and expansion of business.
Partnership is an extended form of Sole proprietorship. It is a mutual agreement between two or more person to work together to achieve a common objective of earning profits. Persons mutually agreeing to start a business together are called partners and are guided by Partnership agreement. It is a business carried on by all or any one of the partners acting for all. The partners jointly own the business and share profits and losses at an agreed ratio. The ownership and management both vests with the Partners. In case of any unforeseen situation personal assets of all the partners be attached to pay off the debts.
Since Partnership is just a superior version of proprietorship, the suitability of this form of business is somewhat similar to the proprietorship form of business. People willing to have a complete control over the management and still want to use the combined capabilities and intelligence of others can prefer partnership over proprietorship.
• Ease of formation: Only Partnership deed need to be prepared. Though the registration is not mandatory yet it is always advisable to register the Deed to avail legal benefits.
• No regulatory compliance
• Better procuring of funds since it involves two or more partners;
• The business risk is distributed proportionately among the partners.
• Partners’ liability is unlimited.
• Each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts.
Limited Liability Partnership
LLP is a hybrid of Partnership and Company form of business organization which combines the benefit of both Partnership and a Limited Company. LLP is a body corporate registered under Limited Liability Partnership Act, 2008 having a separate legal existence distinct from its partners like a Company and It is a contractual agreement between the partners like a partnership. In an LLP one partner is not responsible or liable for another partner’s misconduct or negligence, this is an important difference from that ofa unlimited partnership. In a LLP, all partners have liability limited to their respective contribution, similar to that of the shareholders of a corporation. However, unlike corporate shareholders, the partners have the right to manage the business directly.
• Low cost of formation as compared to Private Companies.
• Easy to run and administer.
• Lesser procedural compliance than Private Companies.
• Nominal costs for complying the annual filing of financials.
• Minimum government intervention.
• Limited liability of partners
• No requirement of compulsory Audit
• Renowned and accepted form of business worldwide.
A Company may be a Private Limited or Public Limited Companies. These are more complex and expensive form of business organization, demanding strict regulations and tax requirements. These are registered under Companies Act, 2013 and are distinct legal entities, separate from its members. The capital so employed is divided into small units called ‘shares’ and the owners of the shares are called shareholders of the Company. Though shareholders are the owners of the company, but they are not in direct control of management of the organisation. The management of business is in control of Board of Directors and they stand in fiduciary relation with the Organization. Minimum capital required to start a private company is Rs. 100,000 only and minimum number of shareholders and directors required are only 2.
Why Company form of Business?
1. The liability of owners is restricted only upto the amount of share capital held by the shareholders
2. Companies are able to raise fund easily by issuing different classes of shares. Since share capital are owned funds of company hence no interest cost is incurred. Moreover. A company form of business enjoys a better credibility in the market as compared to other forms of business thus resulting in easy expansion.
3. The stake in company form of business can easily be sold by transferring the shares to another person. However, transfer of share in private companies are subject to the approval of Board of Directors only.
4. Tax implications: Tax burden do not directly fall on the shareholders of the Company. The dividend received by shareholders are exempt from tax.
To Know Further Please Contact:
Ms. Nitisha Anand (Company Secretary)