Determine the Ideal Business Structure

First, choose the appropriate business structure for your venture, which is fitted to your needs. This decision influences everything in your business, like the running of the company, how much taxes to pay, etc. The different business structures used are explained as follows.

Sole proprietorship: In this structure, a single individual is the owner of the company. This is the simplest technique of starting a venture because this kind of business is not controlled by specific regulations. Choose this kind of structure if your market is small and localized, and the capital to run the business is low. Registering for sole proprietorship ventures is not mandatory. However, in some cases, licenses or permits may need to be obtained for its functioning.  

One person company (OPC): A company having this structure can operate as a separate legal entity from its owner, thus shielding the owner from any personal liability. In this case, the possession of the company can be assigned to the nominee in the event of the owner’s death. Equity funding cannot be done in an OPC, and it cannot have any nominees and directors of foreign origin. When the annual turnover of the OPC exceeds 2 crores and the paid-up capital exceeds 50 lakhs, the organization must be transformed into a private limited company. Additionally, an OPC does not have the right to be involved in non-banking financial investment activities.

Partnership firm: This kind of firm can be initiated by a minimum of two partners. It is advisable to register this firm under the the Partnership Act, 1932, though not necessary. Having foreign partners is not permitted, and perpetual succession does not exist. A partnership deed needs to be signed by both partners. The deed is a verbal contract that states the responsibilities, roles, authorities, and number of shares held by each partner.

Limited Liability Partnership (LLP): This kind of business needs to be registered with the Ministry of Corporate Affairs under the LLP Act 2008. Such a company is a distinct legal entity, where owners do not have any personal liability to the LLP. A minimum of two individuals are required for initiating this company. The LLP has perpetual succession, and hence, its partners may join and exit as per their choice. This structure is appropriate for small and medium-sized companies. The liability of the partner is dependent on the number of share capital.

Private Limited Company (PLC): It is a privately owned business and is regarded as an autonomous legal entity after incorporation. It must be registered with the Ministry of Corporate Affairs under the Companies Act 2013. The PLC must file annual reports of accounts and annual returns with ROC. Additionally, the organization must file tax returns, and the conduction of an audit is necessary.

Public Limited Company: This kind of company provides its shares to the public. In other words, its securities are traded in the share market. A minimum of three directors, seven shareholders, and a registered office are needed to form this business. This structure has almost all the advantages of a private limited company, including the choice of having any number of members, convenient transfer of shareholding, and increased transparency.