Choosing the right Form of Business

Choosing the right business entity allows an entrepreneur to reduce liability exposure, minimize taxes, and ensure that the business can be financed and run efficiently. It also provides business owners with a mechanism for ensuring that the business operations will continue, rather than being automatically terminated, upon the death of an owner. Formalizing the business also clarifies the ownership of all participants in the venture.

When choosing a business entity, you should consider:

(1) the degree to which your personal assets are at risk from liabilities arising from your business;

(2) how to best pursue tax advantages and avoid multiple layers of taxation;

(3) the ability to attract potential investors;

(4) the ability to offer ownership interests to key employees; and

(5) the costs of operating and maintaining the business entity.

Comparative Study:

Features	Sole Proprietorship	Partnership	Limited Liability Partnership	Private Limited Company
Starting up	No registration required	Registration is optional	Mandatory registration	Mandatory Registration
Business Name	No approval required. Should not infringe trademark or copyright	No approval required. Should not infringe trademark or copyright	Approval required prior to incorporation	Approval required prior to incorporation
Legal Status	Not a legal entity	Not a separate legal entity	Separate legal entity	Separate legal entity
Foreign Nationals	Not allowed	Not allowed	Allowed. Min 1 resident Designated partner needed	Allowed
Persons	Min: 1, Max: 1	Min: 2, Max: 20	Min: 2, Max: No Limit	Min: 2, Max: 50
Repatriation	Not allowed	Not allowed	Not allowed	Allowed
Charter Document	None	Partnership Deed	LLP Agreement	Memorandum of Association (MoA) and Articles of Association (AoA)
Business Licenses	Applicable as per business requirements	Applicable as per business requirements	Applicable as per business requirements	Applicable as per business requirements
Validity	Till death of Owner	Dissolved on death of a partner. Can be dissolved at the will of all partners or even one partner can give notice for dissolving.	Perpetual succession	Perpetual succession
Registering Authority	None	Registrar of Firms	Registrar of Limited Liability Partnerships, MCA	Registrar of Companies, MCA
Governing Act	None	The Indian Partnership Act, 1932	The LLP Act, 2008	The Companies Act, 2013
Compliance Requirements	Low	Low	Moderate	High
Income Tax Rates	Individual rates	30%	30%	25-30%
Profit Sharing	Taxable	Exempt from tax	Exempt from tax	Taxable
Liability	Unlimited. Personal property is also covered	Unlimited. Personal property is also covered	Limited upto contribution in LLP (except in case of Fraud)	Limited upto extent of shares hold (except in case of Fraud)
Capacity to Sue	Individual level	As a Firm (in case of registered firms). Individually/ Collectively (in case of not registered firms)	As a Firm	As a Company
Market Reputation	Low	Low	Moderate	High
Winding up/ Dissolution	Easy	Easy	Prescribed process to be followed	Prescribed process to be followed

Preetham Shetty and Co. offers a Cost effective & Easy Business Registration Services packages for its Clients with in Bengaluru. For more info contact info@preethamandco.com