People opt between going for business or for a service. For those who decide to enter into a business should know about the holistic view of the business entities to start with. It initiates with the fact that how many partners or members are going to be associated. The business is entitled as legal entity and gets registered at Registrar of Firms and Companies. It depends whether it is a partnership firm or a sole trading business, a private or a public limited company.
The different business entities are described below –
I. Limited Liability Partnership–this type of business includes more than one partner in the firm who are responsible to pay their liabilities and gain the surplus in a proportionate ratio fixed prior to the commencement of the business.Taxation is exercised at 30%. Business takes about 10 days to confirm registration and requires minimum Rs 5899/-for its incorporation. Less compliance are levied in this type of entity.
1. The person engaged is responsible only for his share of liabilities and surplus. No other member will compensate for another to pay off the liabilities
2. No limitation of amount capitalized by the partners
3. No limitation in including the number of members
4. It has a perpetual succession
5. LLP is exempted from paying Dividend Distribution Tax (DDT)
1. The decision making cannot be done without the mutual consent of all the partners
2. The firm cannot declare itself public to raise investment
3. Dissolution can be declared anytime either voluntarily or tribunal
II. Sole Proprietorship–the one headed kingpin of the whole business is not a legal entity. A sole trader enjoys the privileges of having the control of all the activities related to business. He exercises control over all the decision making policies and its execution. This type involves no compliance.
1. It said to be the easiest way to start a business
2. No registration and fees are required for commencement
3. No capital is required to start with
4. Owner enjoys total gain or surplus all by himself
1. Being a sole trader, he is liable to all its debts and liabilities
2. Need to spend high cost maintenance all year around as compared to other business type
3. Cannot raise funds from shareholders, the funds are managed by the owner itself
III. One Person Company–it comprises of group of companies managed by a single owner. The owner starts the business as a sole trader. The legal proceedings are made flexible but mandatory. Memorandum of Association and Articles of Association are the documents required for the successful incorporation of the firm. The company can indulge into substantial compliance. Taxation is exercised at 30%.
1. The owner enjoys the benefit of surplus and control
2. It has a perpetual succession
3. No minimum capital is required
1. The owner has to fulfill all the liabilities
2. Minimum amount required for registration can be estimated around Rs. 12900
3. Cannot raise funds from shareholders
IV. Private Limited Company–the company is registered within a month by the group of partners under a definite private limited name. Partners are in search of people who are ready to invest and raise fund for the company through shares or by pooling lump sum capital from one of its partners.
1. It has a perpetual succession
2. Liability of a company is limited up to the capital invested into business
3. Indulges in substantial compliance
4. The suffix ‘ private limited ‘ is added with the company’s initial name
1. Here the number of shareholders are limited to the extent of 200
2. Requires two directors and minimum two shareholders to incorporate
3. Minimum amount required for the startup is one lac
4. Private limited company has to pay Dividend Distribution Tax (DDT) on dividend
V. Public Limited Company–this type of business entity involve the selling of shares of the company to the public. This trading helps the firm to generate huge capital for business. A shareholder can buy as much shares he wants to. These types of companies may add ‘public limited’ or just ‘limited’ as suffix to the initial names.
1. The capital can be raised through increasing the number of shareholders – new or existing
2. The investors look forward to pool in their surplus in the company for better profit sharing
3. Shareholders have full right to buy or sell their shares to anyone and anytime they wish to
4. There are limited liability to the shareholders
5. Can have unlimited number of shareholders
6. It has a perpetual succession
1. Takes time for the registration process
2. Being a public limited, the companies need to publish their accounts
3. Exercises duties under strict control of the Registrar