It is rightly said that, “Prevention is better than cure” meaning that, work before you opt for a business entity like Private company registration in India otherwise, at a later stage it is not possible to cure your previous mistake as your business would make good if it is LLP formation in India and OPC registration in India. So, does is applicable while making choice between various Business forms. It is always worthwhile to sit with a business plan for deducing the appropriate and accurate form of organisation for carrying your business, rather than to, hurriedly choose one form and thereafter switching to other form, because it didn’t suit you.  

Hence, below are mentioned some of the tools and factors which aid the initiators while setting up their new business form.

  1. Liability

On the basis of liability, Sole proprietorship is endowed with the greatest liability, then comes the partnership firm, but in both your personal assets are involved, because the entity is not regarded as separate legal entity. In a partnership form of business, even your personal assets are at stake for any action of your adjoining partner.

In Limited Liability Partnership (L.L.P.) form, you can limit your liability up to the extent of your contribution in the firm, except in case of intentional fraud or wrongful act of omission or commission by the partner. What is at stake for you as an owner is what you have contributed and any additional asset guaranteed either by you or on your behalf. The same is applicable on Limited Liability Company (L.L.C.).  

But, the company also includes Incorporation of Private Limited company in India provides restricted liability which extents to your contribution in the paid-up capital. Hence, this is the form which you should opt to limit your liability wholly.

  1.         Taxation

Taxes on Income: Both LLP and Company are taxed at a flat rate of 30% and 25%, respectively, plus Education Cess & Senior and Higher Education Cess, and both have to pay surcharge of 10%(exceeds ₹1 Crore in LLP’s and ₹10 Crores in Companies) and 5% (exceeds ₹1 Crore in companies), respectively.

Minimum Alternative TaxLLP formation in India, One Person Company incorporation in India and Private Ltd. Company registration in India are liable to pay Alternate Minimum Tax @ 18.5 % + surcharge + Cess with effect from financial year 2011-12 on the adjusted total income if regular income-tax on total income of LLP is less than the Alternate Minimum Tax, and generally for companies in all cases.

Dividend Distribution Tax (DDT): In this case, LLP is tax efficient as compared to company, because DDT is not applicable on LLP and Companies are liable to pay DDT @ 16.609 % (i.e. inclusive of surcharge and education cess) on such dividends.

Advance tax: Companies and LLPs are required to pay advance tax in four and three quarterly instalments, respectively.

Whereas, all these compliances are not needed in case of Sole-Proprietorship and Partnership firms, as they are included in the payment of Income Tax by the owner and partners, respectively.  

  1.         Ownership and Control

The forms of Sole Proprietorship and partnership firms limit the number of people who can invest in your business. If you’re seeking a large number of investors or international investors, you may opt for Pvt. Ltd. Company registration in India or any other form of company.

If you desire to maintain a direct relationship between ownership and management of the business, then Private Limited Company registration in India is preferable over any form of other company or Partnership. However, if the objective is to maintain complete authority, then sole proprietorship form of business is best suited.

After discussing the 3 pillars of selection, here are some FAQ’s to aid your process:

Question 1: Are you participating in an industry that is vulnerable to lawsuits and wanted to protect your personal assets?

If Yes, opt for LLP or a company. If No, then opt for Sole-Proprietorship or Partnership firm.

Question 2: When it comes to investment, are you planning to raise capital from market and would like to expand your Business?

If Yes, opt for company otherwise sole-proprietorship or partnership as well as LLP is good option, if you are willing to restrict investment from the owner only.

Question 3: Do you want to minimize your record keeping, auditing and administrative requirements?

If Yes, opt for LLP and not companies. Because, LLP does not require periodical meeting of its member and boards as well as lowers your liability in relation to paperwork, record-keeping and administrative activities, whereas all these compliances are mandatory to hold in case of companies.   

Conclusion

Decision making is one of the most critical step while choosing appropriate business form, as it can take your business to great heights as well as can make you dump in swamp. Therefore, keeping the above mentioned in key notice, an entrepreneur can opt for desirable entity for its start-up. Private Ltd. Company registration in India, is growing at tremendous rate because of the Limited Liability and increased share-capital, whereas the other ones are not that  much popular as it is not seen in law as a separate legal entity and the partners have their personal assets at stake in garb of the wrong-doing by any member or the adverse actions of the firm, itself. So, any time you feel to initiate a start-up always approach the experts or legal advisors, which will help you to decide which form of business suits your start-up. To know more about the choice of right entity, please refer to the Private Limited Company services of the COMPANY VAKIL and their expert lawyers, advocates and CA & CS will guide you through.