How to choose a business structure while starting business in India?
Choosing a business structure will depend on various factors like:
No. of partners-If you are a single person who owns the entire initial investment required for the business, a One Person Company would be ideal for you. On the other hand, if your business has two or more owners and is actively seeking investment from other parties- a Limited Liability Partnership (LLP) or Private Limited Company would suit you best.
Investment required- If you want to spend less initially, it would be wise to go in for a Sole Proprietor, or a HUF or a Partnership. But, if you are sure that you will be able to recover the setup and compliance costs, you can opt for a One Person Company, LLP or a Private Limited Company.
business- Business structures like sole
proprietor, HUF, and partnership firm have unlimited liability. This means, in
case of any default in loans, the entire money will be recovered from the
members or partners in profit sharing ratio. The risk to personal assets is
high in these cases.
Whereas, Companies and LLPs have a limited liability clause. This means that the liability of its members is restricted to the amount of contribution made by them or the value of shares each member holds.
Rates-Income tax rates applicable to a sole
proprietorship and a HUF are the normal slab rates. In case of a sole
proprietorship, the business income is clubbed with the individual’s other
But in the case of other entities like partnership and LLP a tax rate of 30% is applicable. While in case of companies, tax rate is 25% s.t. a specified limit of turnover and other conditions.
Investors’ Funding-It is difficult to get investments when your business structure is unregistered. Entities like LLP and Private Limited Company are trusted when it comes to investment.