Points to Consider Before Choosing Types of Business

 

 

 

 

 

Points to Consider Before Choosing Types of Business

Ease:

The easiest business structures to create are sole proprietorships. It is typically as easy as opening a checking account at your local bank to set up a sole proprietorship.

It is also relatively easy to set up partnerships, but you may have to follow additional rules and guidelines. Corporations are the toughest business structure to set up, and they require strict compliance with state and federal laws. It is also costly, time-consuming, and complex to set up a company.

• Debt and Liability:

  • Several small businesses and startups recognize as a necessary risk of doing business as the personal liability associated with a sole proprietorship or partnership.
  • You can restrict personal liability by registering for a more formal business structure if you are in a high-risk sector (such as selling CBD or weapons online) or simply want to keep your business and personal matters private.
  • The drawback is that this usually requires more paperwork, costs more to register, and may have greater disclosure or maintenance requirements than simpler business types.
• Filing taxes:
  • when it comes to filing your business taxes, you have two choices. In your own personal tax returns, you can file business profits/expenses, or you can make your corporation file taxes separately as its’ own entity.
  • The convenience of filing taxes on your own returns is preferred by most small business owners, but filing business taxes separately will help you keep your personal and business finances apart.

• Risk:

  • In a sole proprietorship, in the event of a legal issue, the sole proprietor of a business will be held legally responsible.
  • Individuals can only be considered liable to a certain extent in a limited liability partnership or corporation.
  • When the corporation accumulates a large amount of debt, it is not necessary to acquire the persons’ personal property in order to settle the debt.
• Cost:
  • The easiest structures to set up are a sole proprietorship or general partnership.
  • Restricted partnerships and companies are much more costly, and in order to understand and draft complicated legal documents, most people would also need to recruit an attorney.
• Operations:
  • You can set up a sole proprietorship if you like the concept of having full control over your company.
  • You should consider forming a company or partnership if you are comfortable with having a lesser degree of control.
  • Only the members of an executive board would have decision-making rights in a company.

 

• Information:

  • Are you comfortable with the public knowing detailed information about your company’s finances and operations?
  • Corporations are legally obliged to provide the government with this information, which would then provide it to the public in general.
  • Individuals are entitled to a much greater degree of privacy in sole proprietorships and partnerships.
• Right to Sell:
  • You can undoubtedly set up a sole proprietorship if you want the freedom to sell your company whenever you please.
  • Once you sell the company’s properties, the company will come to an end. Selling a partnership includes getting many people’s approval.
• Expanding:
  • Each business owner dreams of expanding their company, but only a small number of shareholders are permitted to have certain business structures.
  • Once it takes on a partner, single ownership would cease to exist and if the new partner is unhappy with growth, there will be no way to expand the company.
• Capital:
  • Corporations and partnerships are enabled with the greatest ease to raise capital.
  • The owners of sole proprietorships usually raise capital by using their own properties as collateral.

Please remember to consider the information above before you decide on a structure for your business. It is really hard to change your decision once you choose the type of business you want to operate.

You must choose a structure that would be beneficial to your company’s sustainability while keeping your own needs in mind.

Popular types of business you can start

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• • Business Startup in India is one of the first challenges faced by Startup businesses is to decide which type of business they can register. Although there are many different types of businesses, it doesn’t have to be hard to choose one.
  • Are your verified profiles on our digital platform ready to serve you and to answer all your questions relating to start-up registration, online registration of companies in India, and also company registration in India?
  • The cost of company incorporation is determined by two factors, including the type of company being registered.
  • Start a New business and get online company incorporation in India with Rajput Jain & Associates team experts who offer competitive Company Registration Services and fees and can also assist you with firm registration, start-up registration, or online company registration in India.
  • Here are some types of business most commonly used that can help you to choose which type of business is right for your start-up:

One Person Company	Private Limited Company	Limited Liability Partnership	Proprietorship	Partnership Firm
one Shareholder 1 Director one  Nominee DIN DSC Minimum Authorised Share Capital 1 Lakh	2 Shareholders Two  Directors DIN DSC Minimum Authorised Share Capital 1 Lakh	Two Designated Partners DIN DSC Capital Contribution 10000/-	PAN Adhaar Bank Details Business Details Investment minimum 1 Lakh	2 Partners PAN of Partnership Capital Contribution 10000/-

 

Sole Proprietorship

• • Due to their simplicity and how simple they are to establish, sole proprietorships are the most popular kind of online business.
  • A sole proprietorship is a business owned and managed by a single person and requires no registration. If you’re operating a one-person company, the government would automatically consider you to be the sole proprietor.
  • You can, however, need to register with your city or state for local business licenses, depending on your products and location.
  • A significant thing to remember is that there is no legal or financial difference between the business and the owner of the business.
  • This indicates that you are accountable for all the income, liabilities, and legal problems that your business will face as the business owner, not usually a concern as long as you pay your bills and keep your business practices ethical.
  • If you start an e-commerce business on your own, the best form of company for you is possibly a sole proprietorship.
  • For more information about Sole Proprietorship: Click here

 

Partnerships

• • A partnership may be the right option if you’re starting your company with someone else.
  • There are several advantages to a partnership: you can pool resources and knowledge with others, secure private financing, and more.
  • Just bear in mind that duty and responsibility are shared equally between each member of a partnership. However, there are many types of partnerships that will allow you to identify the roles, responsibilities, and liability of each member (such as limited partnerships, mentioned in the paragraph below).
  • While this may sound like a complicated process, a partnership has many advantages, so if you want a co-owner, don’t be afraid to go for it.
  • Many online businesses are created by partnerships. It’s certainly worth the extra paperwork to have someone to help share the work of starting a new business.
  • For more information about Partnership: Click here

 

Limited Liability  Partnership

• • In a Limited liability Partnership, there should be at least one of the owners called a “general” partner who has the power to make business decisions and is directly liable for business debts.
  • But LLPs still have at least one “limited” partner who can invest money in the business but has little control over business activities and operations on a daily basis.
  • The benefit of these restricted partners is that they are not personally responsible for business debts.
  • While it might not be as popular, it is a great option for businesses seeking to raise capital from investors who are not involved in working on the everyday aspects of their operations.
  • It is done at the state level to form a Limited liability Partnership. Every state has its own laws, but you must pay a fee and file documents with the state in general, usually a “certificate of the limited partnership.”
  • This document is similar to the articles (or certificates) filed by a company or an LLP and contains general and limited partnership details.
  • The filing fee for Limited Liability Partnership (LLPs) are similar to Corporates or Limited Liability Company

Limited Liability Partnership

• • LLP (Limited Liability Partnership) has a similar business structure but it does not include general partners. All owners of an LLP have no personal liability for any business debts.
  • It is done at the state level to form a limited liability partnership. Every state has its own laws, but you must pay a fee and file documents with the state in general, usually a “certificate of limited liability partnership.”
  • This document is similar to the articles (or certificates) filed by a company or an LLC and contains and limited partnership details. The filing fee for Limited Liability Partnership (LLPs) is similar to Corporates or Limited Liability Company.
  • For more information about LLPs: Click here

 

• A Public Limited Company

  • An Public Limited Company is a completely independent business composed of several shareholders who are provided with Stock in the business.
  • The only drawback with this is that your earnings would be taxed twice, both at the corporate level and at the personal level, is what is known as a “Public Limited Company,” which allows the company to deduct taxes just like an entity.
  • However, this is entirely normal, and if you actually work for a corporation with many workers, that’s probably the business structure they are using.
  • If you startup as a small business, especially one that only works online, this would not be appropriate to register yourself as a corporation.
  • However, if you’re already an existing company with many employees, it might be the right move to list your company as a corporation.
  • You would have to register with the state very specific documents, followed by obtaining the requisite business licenses and permits.
• Private Limited Liability Company
  • Pvt Limited Company, commonly known as a Pvt Ltd., is next on our list of business types.
  • A Private Limited Company is a newer type of company that is a combination of a partnership and a company. Private Limited Company owners are referred to as members instead of shareholders.
  • There must be a managing member who takes care of the daily business activities, no matter how many members a specific Private Limited Company has.
  • The key difference between a Private Limited Company and a Public Limited company is that Private Limited Company’s are not taxed as separate business entities. Instead, all income and losses are transferred from the corporation to the members of the Private Limited Company, who report a personal income tax return on profits and losses.
  • The good thing about pursuing a Private Limited Company is that members are not directly responsible for the business decisions or actions, and compared to a corporation, there is far less paperwork involved in establishing a Private Limited Company.

Popular differences between a private limited company & a public limited company are as below:

Features	Private limited company	Public  limited company
Invitation to the public- IPO	No	Yes
Issue of prospectus	No	Yes
The quorum at the Annual general meeting	2 Members	5 Members
Certificate for commencement of Business (Compulsory)	No	Yes
Term used at the end of name	Private Limited	Limited
Managerial remuneration limit	Can not exceed more than 11% of Net Profits	No restriction
Statutory meeting (Compulsory)	No	Yes
Minimum members of Company	2	7
Minimum capital of Company	100000	500000
Minimum directors of Company	2	3
Maximum members of Company	200	Unlimited

• • Furthermore, there are many ways in which business can be set up in India by a foreign company. By registering as a fully Indian corporation or as a foreign company, a company may enter the Indian market.
  • Private Limited companies are another of the most popular forms of online businesses, as they allow small groups of individuals to form a business together easily.
• Non-profits Organization
  • A NGO (Non-profit organization), it is a company organization designed to support educational or charitable purposes.
  • The “non-profit” part comes into play in that the organization must retain any money raised by the corporation to pay for its expenses, services, etc. Bear in mind that many forms of non-profits are available, several of which will obtain the benefit of “tax-exempt”.
  • This procedure includes filing paperwork with the government, including an application, for them to accept you as a non-profit organization. They will be able to tell you which category you are best in, based on the criteria of your new company.
  • NGOs can be registered in India under any of the following laws: Society under Societies Registration Act 1860,  Section 8 Company under Companies Act, 2013, Trust under Indian Trusts Act, 1882
• Co-operative society
  • Co-operative societies have been seen as ideal tools to encourage people to come together again and help themself in the process of removing unscrupulous middlemen making huge profits at the expense of society.
  • The key planning aspect, if an individual or a group of individuals wishes to form a society, must be if whether not all of the members concerned have a popular goal of achieving it, is essential because only if they share a general tendency or intention can only society be desired, otherwise the whole objective of establishing a society will be defeated.
  • A Cooperative Society is entirely owned and managed for the benefit of the organization’s members who use its services.
  • In other terms, whatever is received by the cooperative is then shared between the participants themselves, and no external stakeholders are expected to be paid out, etc.
  • Unlike other types of companies that have shareholders, cooperatives sell shares to cooperative “members,” who then have a say in the activities and course of the cooperative itself.
  • As compared to the other types of companies mentioned, the key difference in the process of being a cooperative is that your company must create bylaws, have a membership application, and have a board of directors with a charter member meeting.
  • Furthermore, there are many ways in which business can be set up in India by a foreign company. By registering as a fully Indian Private Limited Company or as a foreign company, a company may enter the Indian market.

1. Office of Liaison

• • As per the Law and regulation,’ Liaison Office’ refers to a place of business that operates directly or indirectly as a channel of communication between the Principal Place of Business or Head Office by particular name it is called and entities in India but which does not conduct any trading / commercial / industrial activity and maintains itself out of inward remittances received from abroad via normal banking channel.
  • A Liaison Office (LO) is a good idea of establishing a new presence in India, often referred to as a Representative Office.
  • A LO liaises are networking between the parent company and Indian entities.
  • While a Liaison Office can promote the interests of the parent company and create a network, it cannot make money within India; all operational costs are accountable from internal funds.

Registration

• A Liaison Office registration is approved by the RBI and then by the MCA. In general, registering a Liaison Office takes 45 days and needs renewal after 3 years.
• LO are perhaps the cheapest way to set up an office in India, but they have limited scope for what a company can do in the country.
• Foreign companies generally use Liaison Office to monitor networking, build knowledge of a market, and plan future business opportunities in India.

Taxation

• As Liaison Office is not expected to earn revenue, they are not taxed by the Indian government.
• However, if the Liaison Office becomes a permanent establishment in India, the foreign company would be taxed at a rate of 40% plus the prescribed surcharge and cessation.

2. Branch Office

As per the Law and Regulation, Branch Office in the relation to a company refers as follows:

1. An organization specified by a company as a branch; or
2. Any organization engaged in either the same or substantially the same operation as that conducted by the company’s head office; or
3. An organization engaged in any production, processing or manufacturing activity, but does not include any establishment specified in any order as per the Central Government.

The Branch Office (BO) is not an incorporated company as it’s similar to a Liaison Office, but an extension of a foreign company.

However, as a representative of the parent company, Branch Offices can engage in commercial business.

The Branch Office can carry out research activities, import and export activities, provide advisory/consultancy support, information technology (IT) services and technical support for the products supplied by its parent company.

Registration

• A Branch Office is approved for registration by the RBI and then by the MCA. It takes 45 days before a Branch Office is registered.
• In addition, registration renewal is usually not necessary, but in some circumstances, RBI gives approvals for 2-3 years, and renewal is required after registration.
• The RBI restricts Branch Office to directly undertake manufacturing and production work. Such work must be outsourced by Branch Offices to an Indian manufacturer.
• However, the RBI does allow an exception for BOs operating in Special Economic Zones (SEZs) for allowing those particular BOs to engage in manufacturing independently.

Taxation

• A Branch Office is actually conducting business in India and hence is subject to a 40 % corporate tax. The surcharge is levied @ 2% on total income above 1 Cr up to 10 Cr. and @ 5% on taxable income exceeding 10 Cr.
• Cess is also applicable to health and education @ 4 %.
• After paying income tax a Branch Office can resettle profits back to its parent company.
• In addition, a Branch Office is also required to file an income tax return in India.

3. Project Office

• As far as Project Office refers a business location to represent the interests of the foreign company carrying out a project in India but excludes a Liaison Office.

Requirements to Establish

• A project office functions similarly to a branch office, the only difference is that a company sets up a project office for a specific project in India.
• It may to set up project offices for construction purposes or for projects co-funded by Indian and foreign financial institutions.

Registration

• Project Office Registration is approved automatically by the Authorized Dealer Bank and it does not require any prior RBI approval.
• It takes 15 -20 days for a Project Office to be registered.
• However, it must be closed immediately after the project is completed.

Taxation

• A Project Office is actually conducting business and hence is subject to corporate tax at 40%.  The surcharge is applied @ 2% on taxable income exceeding 1 Cr up to 10 Cr., and @ 5% on taxable income exceeding 10 Cr.
• Cess is also applicable to health and education @ 4 %.
• After paying income tax a Project Office can resettle profits back to its parent company on Completion of the project.
• In addition, a Project Office is also required to file an income tax return in India.

Private Limited Company 

• An incorporated company formed and registered under the Companies Act, 2013. Apart from its shareholders, it is a separate legal entity.
• A limited liability company is a business entity incorporated legally independent from its owners and shareholders. A limited company needs a minimum of two shareholders and up to 99.9 percent of its shares can be held by foreign companies.
• In the case of Limited companies are allowed to own property, hire employees, sue, and be sued. The existence of a limited company is unlimited, which means its existence does not depend on the status of shareholders or members. Limited companies are able to borrow funds.
• The incorporation of a private limited company is the easiest and quickest way for a foreign company to start a company in India.
• In addition, further exemptions are available to private companies with lower restrictions as compared to public limited companies.
• Therefore, most of foreign companies tend to start a wholly-owned private limited company as a subsidiary. Setting up a limited company offers the most control and the widest presence to a foreign company.

Registration

• A private limited company Registration under the MCA is required. It takes 15 days for a company to register. You need a minimum of 2 shareholders and 2 directors.
• Permitted activities for Limited Liability Companies are as per its ‘key objects’ specified in the company’s

Memorandum & Articles of Association.

However, under the Government of India’s foreign direct investment (‘FDI’) scheme, foreign investment in the following industries are prohibited:

(a) Lottery businesses like government/private lottery tickets, internet lotteries, etc.

(b) Betting and gambling, like casinos, etc.

(c) Chit Funds

(d) Nidhi business

(e) Dealing in transferable Development Rights (TDRs)

(f) Real Estate Business or Farm House Construction,  ‘Real estate business’ should not include the construction of residential/commercial premises, the development of townships,  roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated as per the SEBI (REITs) Regulations 2014.

(g) The manufacture of cigarettes, cheroots, cigarillos and tobacco products, tobacco or tobacco substitutes;

(h) Activities/sectors not access to private sector investment, e.g. Atomic Energy.

Taxation

• A limited liability company actually operates in India and is therefore subject to corporate tax of up to 25% for turnover up to Rs. 2.5 billion and 30% for turnover exceeding Rs. 2.5 Billion.
• The surcharge is payable @ 7% on taxable income exceeding than 1 Cr up to 10 Cr. and @ 12% on taxable income exceeding 10 Cr.
• Cess is also applicable to health and education @ 4 %.
• It is also subject to Dividend Distribution Tax @ 15% plus surcharge and Health and education cess as applicable.
• In addition, Limited Liability Companies are also required to file an income tax return in India.

Limited Liability Partnership  

• A limited liability partnership firm (LLP) is a combination between a limited company and a partnership firm.
• An LLP is a distinct legal entity from its member or shareholders, which ensures that the liability of the members is limited to the contributions they have agreed upon.
• A foreign company can create an LLP only in sectors where the RBI permits 100 % certified foreign direct investment (FDI).
• The Indian government has ease FDI restrictions and thus the number of industries under 100% FDI is increasing. LLPs can generate revenue, buy and own property and reimburse earnings outside India

Registration

• limited liability partnership must register with the Ministry of Corporate Affairs and provide reliable proof of the existence of the company.
• The LLP does have a reputational benefit over the Partnership Firm due to the additional registration involved.
• limited liability partnership appears to require less paperwork and relatively low record-keeping as compared to a limited company.

Taxation

LLPs are taxed at 30% and a surcharge of 12% is implemented to LLPs if the total income is exceeding more than 1 Crore.

Joint Ventures

• A joint venture is a collaboration between two or more companies or individuals who agree to pool capital or goods with a uniform project.
• JV in India are perhaps the most popular in industries that do not provide 100% FDI.
• Joint ventures provide foreign companies a comparatively low risk, considering that these companies conduct thorough research over their Indian partners.
• An joint venture facilitates foreign companies to utilize their Indian partners’ existing networks and once taxable, these companies are able to remit their Indian revenues outside the country.

Registration

• Foreign Company would have to become a shareholder of the new Indian company in order to be registered as a joint venture company and then such a joint venture company will be known as an Indian domestic company.
• There is no separate law for registering as a joint venture in India, however, RBI or government approval must be taken.

Taxation

• Corporate tax @ 30% plus surcharge and cessation is subject to Joint ventures.
• Choosing whether you should set up an office, a firm or a company in India must correspond to the size, ambitions, and path of the company in the country.
• A liaison office may work the best for a smaller company able to explore India’s prospects. Alternatively, the incorporation of a limited company would be the logical decision of a company seeking to expand aggressively in emerging Asian markets.