You must be one of the aspiring individual keen to start a business and be your own boss. Aren’t You! There is an excitement in the air about a startup except for the paperwork. But the most crucial decision one has to take while starting a business is choosing the right combination of a legal structure or entity.
Before incorporating any company one should pay proper attention to each business activity since it comes with its own rules and regulations. One needs to select a particular business entity to start a business in India. To select a particular form of legal entity one has to be very familiar with the taxation policies, owner liability, compliances, funding strategies and so on. When starting a business no one likes the documentation process involved. But also at the same time, one cannot totally ignore the same. No business can run without compliances as all the entrepreneurs are aware because these are vital things required to run the show.
Let us discuss the various business legal entities for the startups which are as follows –
- Private limited company – Private limited company registration is one of the most popular forms of business entity preferred by the startups in India. This form of business entity is considered to be the best when you are thinking to expand and grow your startup and ready to raise funds from investors. To establish a Pvt Ltd company registration, minimum of 2 directors and 2 shareholders are required. An individual can be both a director and a shareholder in case of Pvt Ltd Company. Other unique features include limited liability, the ability to raise funds and separate legal entity status. This form of business entity is ideally suited for a small and medium-sized business that is managed professionally or family owned.
- Proprietorship – It is a kind of business entity which is owned, controlled and managed by a single person. Proprietorship is one of the best ways for implementing your ideas in the startup. The proprietor themselves has to take the ownership stake. This business entity does not require minimum capital investment.
- One Person Company – This business entity was initiated to give a boost to startups and entrepreneurs who are independently capable of starting a venture. OnePersonCompany is similar to Pvt Ltd Company, but with a sole shareholder. As the same says OPC is managed and controlled by a single person. Only a single person is required for the purpose of the registration. However, OPC has its own restrictions. It is not a good option for sole entrepreneurs looking to create a large entity.
- Limited liability partnership – As the name suggests an LLP is a form of partnership where some or all the partners have limited liabilities depending on the jurisdiction. In short, LLP is a blend of Pvt Ltd Company and a partnership firm. It offers both the features in one legal entity. When compared to Pvt Ltd Company Limited Liability Partnership cost less and has minimal compliances.
- Partnership firm – It is almost similar to the sole proprietorship, but it requires at least two business partners. A partnership firm enjoys many benefits. In a partnership firm, one can sign a contract to open a bank account in the name of the firm. Moreover, the partners have unlimited liability and compliances are fewer. This type of entity is best suited for startups who want to reduce their compliances burden.
Providing a legal structure to your firm goes a long way. One can go ahead with any of the above mentioned legal entities depending on an individual’s requirements and suitability. These legal entities help to build a sense of trust and reliability in the market.
Hope the blog on various business entities is clear with you. It is up to you to arrive at a decision. If you are starting a company and in a dilemma to choose the kind of business entity then speak to our experts at Aavana who would be glad to assist you in every possible way.