Out of different types of business entities prevailing in India. Incorporating the most suitable is the most important decisions taken by entrepreneurs.

Types of Business Entities

  1. One Person Company / Sole Proprietorship
  2. Pvt Ltd / Private Limited Company
  3. Public Company / Public Limited Company
  4. LLP / Limited Liability Partnership.  

These are explained in the article mentioned below along with their features.

One Person Company

Private Limited Company

Public Limited Company

Limited Liability Partnership

Minimum Number Of  Directors 1 2 3 2
Maximum Number Of Directors 15 15 15 unlimited
Minimum Number Of Members 1 2 7 2
Maximum Number Of Members 1 200 unlimited unlimited
Minimum Capital Required No minimum capital required Rs. 1 lakh Rs. 5 lakhs No minimum capital required
Maximum Capital 50 lacs Unlimited Unlimited Unlimited
Maximum Turnover 2 crores Unlimited Unlimited Unlimited
Transfer of Ownership Ownership can be transferred to nominee in the event of death of the owner Ownership can be transferred through share, max 200 shareholder Ownership can be transferred Ownership can be transferred
Subscription of Shares Public subscription not allowed Public subscription not allowed Public subscription allowed Public subscription not allowed
For Raising Capital Difficult Moderate Moderate Easy
Issue of Prospectus Not Mandatory Not Mandatory Mandatory Not Mandatory
Managerial Remuneration NA No limit for managerial personnel Govt approval, if remuneration payable is above limits Remuneration is based on LLP agreement
Commencement of Business / Operations Immediately after obtaining certificate of incorporation Immediately after obtaining certificate of incorporation Immediately after obtaining certificate of incorporation Immediately after obtaining certificate of incorporation
Legal Status OPC is a separate legal registered under the Companies Act 2013. The Directors are liable for defaults made under the act. Pvt Co is a separate legal registered under the Companies Act 2013. The Directors are liable for defaults made under the act. Public Co is a separate legal registered under the Companies Act 2013. The Directors are liable for defaults made under the act. LLP is a separate legal registered under the LLP Act 2008. The designated partners of LLP are liable for contraventions under the act.
Governing Act / Law Companies Act 2013 Companies Act 2013 Companies Act 2013 LLP Act 2008
Foreign Ownership The Director and Nominee Director cannot be foreigners Investment allowed under automatic approval route is most sector FDI is allowed under automatic route in the government allowed sector Allowed with prior approval of RBI and FIPB
Annual Statutory Filings Annual Statements of accounts and annual return with ROC Annual Statements of accounts and annual return with ROC Annual Statements of accounts and annual return with ROC Annual Statements of solvency and annual return with ROC
Annual Filings Annual Accounts

Annual Return

Income Tax Return

Divident Distribution Tax

Annual Accounts

Annual Return

Income Tax Return

Divident Distribution Tax

Annual Accounts

Annual Return

Income Tax Return

Annual Statement of Accounts & Solvency

Annual Return

Income Tax Return if turnover above 40 lakhs

Tax Advantage Tax @ flat 30% + SurCharge + Education Cess + Minimum Alternate Tax Tax @ 30% + SurCharge + Education Cess + Minimum Alternate Tax Tax @ 30% + SurCharge + Education Cess + Minimum Alternate Tax Tax @ flat 30% + SurCharge + Education Cess + Alternate Minimum Tax
Pros / Advantages Registration process is simple, fast and cheap.

Easy to manage and operate

Very few Compliance requirements

Termination Process is easy

Limited Liabilities for shareholders

Credibility and reputation

Competitive tax advantages (corporate tax benefits)

Separate Legal Identity

Large amounts of capital may be raised as shares are sold to all and unlimited quantity

Greater status as a business

Separate Legal Identity

Compliance requirements are moderate

Limited Personal Liability of the partners

Limitations / Drawbacks Liabilities of Owner are unlimited

No separate legal identity than the owner

Raising capital is difficult

Registration must be renewed annually

Stringent compliance matters

Strict Code of Conduct

Incorporation and Administrative costs are high

Termination process is complicated

Greater Rules and Regulations – shareholders are entitled to all information

Risk of Uncontrolled Growth lead to management issues

Original owners may lose control over business

Minimum 2 partners are needed at all times

Lack of ease of ownership transfer and investment

No corporate Tax Benefits

Which Types of Business Entities Should You Use?

Determine your most suitable business entity based on the following factors.

  1. Initial investment.
  2. Number of people involved.
  3. Expectations about further investments.
  4. The nature of your business.
  5. Pros and Limitations of the business entity.

 

Resources

  • Government of India. (n.d.). Startup India. Retrieved April 20, 2019. from https://www.startupindia.gov.in/.
  • Government of India. (n.d.). Ministry Of Corporate Affairs – Government of India. Retrieved April 20, 2019. from http://www.mca.gov.in/.
  • India Filings. (n.d.). Proprietorship vs Partnership vs LLP vs Private Limited Company vs OPC. Retrieved April 20, 2019. from https://www.indiafilings.com/learn/partnership-vs-llp-vs-private-limited-company/
  • ClearTax. (n.d.). Private Limited or One Person Company or Limited Liability Partnership. Retrieved April 20, 2019. from https://cleartax.in/s/private-limited-one-person-company-limited-liability-partnership

 

STAY TUNED. as we will shortly come up with the next blog. On “Write A Business Plan To Start Your Own Business”

 

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