Different forms of business organizations

Let us discuss these business structures in detail.

1. Sole-Proprietorship–

• • This is the simplest form to start business. In this type of business structure an individual is wholly responsible for all the debts and losses and also enjoy profits. Normally there is no registration required to start Sole Proprietorship business. You need to take permission from local administrators under Shop and Establishments Act and jump into ocean of uncertainty and thrill to drive your boat. You can further take GST Registration and Udyog Aadhar under Micro, Small and Medium Enterprise Act known as Udyog Aadhar for your business.
  • In this, there is lesser number of legal compliances and the individual can also enjoy tax savings to the extent of minimum exemption limit.

2. One-Person Company–

• • Sole Proprietorship has disadvantage of unlimited liability and to form Private Limited Company at least 2 persons are required. Therefore Govt. had introduced this business structure for an individual who wish to climb ladder of success being One-Man Army. OPC is meant for Solo Entrepreneurs.
  • If revenue of business is over 2 crores and paid-up capital is above 50 lakhs then OPC is required to be converted into Private Limited Company. If you want to start business by securing your personal assets then this structure is for you. Of course there will be some legal compliance at the cost of limited liability. It is taxable at flat rate of 30% plus applicable surcharge and cess.

3. Partnerships–

• • When two or more persons come together to carry out business, then it is called Partnership. Partnership requires less investment as it requires only partnership deed. Partnership deed is written agreement between partners setting objectives of business and sharing ratio. It is regulated by Partnership Act, 1932. It is not compulsory under Indian law to get Partnership firm registered but a registered firm enjoys various benefits over non-registered firms. In general partnership, all partners have unlimited liability. It means in case of losses or to pay debts personal assets of partners is at risk. The basis of partnership is mutual trust and confidence among partners. Partnership firms are taxable at flat rate of 30% plus applicable surcharge and cess. The main disadvantage of partnership is unlimited liability which gave rise of Limited Liability Partnership.

4. Limited Liability Partnership–

• • In Limited Liability Partnership, the liability of partners is limited to the extent of contribution made by each partner. It is separate body corporate incorporated under Limited Liability Partnership Act, 2008 and is a legal entity separate from that of its partners. It includes elements of both a corporate structure as well as a partnership firm structure. It is much cheaper than starting Private Limited Company with less legal compliance. There is no limit on number of partners in LLP. Tax is applicable at flat rate of 30% plus applicable surcharge and cess.

5. Private Limited Company–

• • Company is an artificial legal person having its separate legal entity with perpetual succession and common seal. Start-ups, who want to grow fast, raise funds and attract talent by offering Employee State Option Plan, can start as private limited company. Private Limited Company can be incorporated with at least 2 persons and minimum paid up capital of Rs.1 lakhs under Companies Act, 2013. The liability of directors is limited to amount invested by them. It has average legal compliance and tax advantage because companies with lower turnover are chargeable @ 25%. Normally Companies are taxable at flat rate of 30% plus applicable surcharge and cess.

6. Public Limited Company–

• • The main difference between Private and Public Company is that Public company can invite general public to invest their money in company. It can be listed on recognized stock exchange or may be unlisted. It has more compliance because hard earned money of general public is invested in company. The minimum members required to form a Public company are 7 and the minimum paid-up capital required to form a public company is 5 lakhs. Public Companies are taxable at flat rate of 30% plus applicable Surcharge and Cess. The main intention for forming public limited company is to raise money, protect yourself and build reputation which drives sales to company.