Business Structure

When making a decision about the type of business to form, there are several criteria you need to evaluate. Your business structure affects how much you?pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability.?You should choose a business structure that gives you the right balance of legal protections and benefits.

The decision of choosing a right?business?structure is crucial as it play a role in the success of the?business.

Types Of Business Structures In India

Sole Proprietorship It is the oldest and the simplest form of?business entity. This type of?business?entity is mainly suitable for small-scale?business operators. As the name suggests sole proprietorship company is owned and managed by the individual making him the sole authority to take all kind of decisions regarding the operations of the organization.

Partnership Firm-?The?partnership firm?is an association of two or more than two persons who desire to come together and carry out a business. One of the advantages of partnership firm over?sole proprietorship firm?is the increase in the amount of capital investment.?

Limited Liability Partnership - This type of company was introduced in India through the?Limited Liability Partnership?Act 2008. One of the biggest advantages of?LLP?over the traditional form of partnership is the presence of limited liability. The LLP formed is considered to be a separate legal entity from its members which makes the liability of the members limited to their share.

One Person Company-?The concept of?One Person Company (OPC)?was recently introduced to overcome the various disadvantages associated with sole proprietorship form of business. Just like sole proprietor company, one person company is also owned and managed by the single owner, giving him a full control over the company. However, unlike the sole proprietorship business entity, the liability of the owner is limited to his/her contributions to the business.

Private limited Company-?This type of company is basically suitable for medium and large-scale business enterprises. It is a form of privately held business with minimum 2 and maximum 200 members. Some of the advantages of this form of company are that the liability of the members of this company is limited to their share. In addition to this, the disclosure requirements in case of private limited are also less as compared to?private companies.

Public Limited Company-?This type of company can be formed with at least 3 directors and 7 shareholders. One of the major benefits of the?public limited company?is that it can offer its share to the public at large and raise funds. Further, it gives better expansion opportunities to business entities as compared to private limited companies.

Keep in mind that the business structure you start out with may not meet your needs in years to come. Many sole proprietorships evolve into some other form of business-like a partnership or corporation-as the company grows and the needs of the owners change.

Don't take this very important decision lightly, and don't make a choice based on what somebody else has done.

Carefully consider the unique needs of your business and its owners, and seek expert advice, before settling on a particular business format.

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Author CA Neetu Jain