Choose the best suited entity for your business NOW!
Selecting the best business entity is the most essential decision before starting your business. And surprisingly, this is where many businessmen tend to step in the wrong puddle. You must focus on setting up the relevant entity without shifting your focus to ownership, control, or even profits beforehand.
So, first, let’s go through what exactly is a business entity. In simple terms, an entity essentially refers to your business structure. It refers to the organization of your business with respect to its legal status.
The business structure influences your profit sharing, risk consideration, ownership, etc.
Here, we aim to focus at simplifying the various types of business entities that you can register in India. If you go on to search the web, you would find truckloads of information, rather technical information on this topic. So, we’ve made it simpler for you:
This is the most basic type of business entity. The business is owned, operated and managed by a single individual. The entire burden of risk bearing lies on that person.
The entire profit (or, loss) arising from that business is enjoyed (or borne) by him, acting as a reward for his sole risk-bearing. But the business is not a separate legal entity in this case, and does not enjoy perpetual succession.
There is no requirement to register such an entity with the state.
Before moving forward, PERPETUAL SUCCESSION basically means the continuation of a firm’s existence, despite the death, insolvency, insanity, exit, or the transfer of shares of the owner.
Partnership refers to the relation between two or more persons who have agreed to share the profits of a business carried out by all, or anyone of them acting for all. In India, it is governed by the Indian partnership act, 1932.
Oral as well as written agreement between the partners is permissible. Even though a written deed is not compulsory, it is advisable to have one. It clears out the rights and responsibilities of each partner, and helps in settling any future disputes that may arise between the partners. It can also be used as an evidence in the court in case of any disagreement.
The companies in India are governed by the Companies Act, 2013. It has to be registered through MCA portal.
There are various types of companies that may be registered in India:
One Person Company
Such a company has a single shareholder, who looks after the management of the entire company. OPC enjoys all the advantages including perpetual existence and independent legal identity.
It is different from sole proprietorship because in case of OPC, the owner has a limited liability. Whereas, in case of sole proprietorship, the owner has an unlimited liability, wherein his personal property can be utilised to pay off the business debts.
Private Limited Company
It is an association or a group of people (known as shareholders) that carry out a business with pre-defined objectives. Such an entity is generally formed where the shareholders have high growth aspirations. It has minimum 2, and maximum 200 shareholders.
It is different from a mere partnership firm because, the shareholders have limited liability i.e. corresponding to the capital contributed by them.
Public Limited Company
In such a structure, there is no maximum limit on the number of shareholders. There must be a minimum of 7 shareholders, and the company is permitted to raise funds from the public (not a feature of private limited company) by listing itself on a stock exchange.
Nidhi company is a sub-category of Non-Banking Financial Companies (NBFC). It facilitates easy lending of funds to its members, and promotes an environment of thrift or savings.
This entity is better referred to as a non-profit organization. It was promoted by the Government of India in furtherance of motives such as advancement of art, culture, and society. In case of any profit made, it uses it to promote the welfare of society. It is incorporated as any other company but has the following advantages over other companies:
- No minimum capital required
- No stamp duty charges
- Easy legal compliances and, many more benefits.
The main focus of a producer company is to enable a cooperative society dealing in primary produce to function as a company. It helps to promote the manufacturing and selling of agricultural produce through facilitated trading.
Limited Liability Partnership
This is hybrid of a partnership firm and a company (since it offers limited liability, which is a basic feature of a company). The owners of LLP have the right to manage their business directly.
An LLP cannot raise funds by the issuance of equity shares to the public. For the registration of LLP, one has to receive an approval from MCA.
We at Vakilgiri provide you with the best legal advisory services for your business and help you register it at the most affordable prices. Reach out to us NOW and become a part of the most trusted legal advisory family!