What Kind of Business Entities you Can Set Up in the Indian Economy?

Selecting the business entity is an important decision in itself. The type of business and its planned vs. expected growth can be the basis for the decision on setting up the business. The type of business entity you select will depend on three fundamental factors: liability, taxation and record-keeping.

Types of Business Set-ups

Indian markets are wide enough for business-minded people to sell their products and services. The businesses entities here enjoy several privileges and face obstacles based on the nature of their business and the size of the organization. The following are the types of business entities one can set up in India:

  • Sole Proprietorship
    It is for a single-handed trading and small business, which usually has a limited ability to raise capital, limited scope for growth and undivided profits. In this type of model, the liabilities and taxes are borne by the owner of itself. It is the most flexible to form and dissolve setup with least legal hassles, at minimum expense and one has full authority over business decisions.
    Documents required for such set-ups: PAN card in the name of sole proprietorship, license to do business under the Shops and Establishment Act, Bank Current Account in the name of the Business Entity and GST Registration.
  • Partnership
    More than one person coming together for business interests inviting joint business commencement is a partnership. A partnership business entity can be formed under the Indian Partnership Act, 1932, and registered with the Registrar of Firms. Partners are personally accountable for an unlimited amount of partnership liabilities; hence, the firm and partners do not have a separate legal entity in the eyes of law. A partnership firm can have a minimum of two and maximum of twenty partners. Minors can also be partners in this model.
    Documents required for such set-up: PAN & TAN in the name of partnership firm, Partnership Deed, Address Proof of the business and all partners, license to do business under the Shops and Establishment Act, Bank Current Account in the name of the Business and GST Registration.
  • Limited Liability Partnership (LLP) Companies
    Such models differ from the partnership model. LLPs are registered under the Limited Liability Partnership Act, 2008 with the Ministry of Corporate Affairs. The registration costs are higher compared to the partnership firms. Partners and the firm have independent identity in the eyes of law. A minimum of 2 and no upper limit for the maximum number of partners are there in LLP. No minor can be a partner in this model.
    Documents required for such set-up: PAN & TAN in the name of partnership firm, Partnership Deed, Address Proof of all Partners and Firm, license to do business under the Shops and Establishment Act, Bank Current Account in the name of the business, GST Registration.
  • Private Limited Company
    These companies are registered with the Ministry of Corporate Affairs under the Companies Act, 2013. A private limited company has no minimum capital requirements and is easy to set up. The registration costs for such entities are lesser than LLPs. The shareholders have limited liability, which makes them accountable only to the extent of their share capital. Such companies can have a maximum of 200 shareholders or members.
    Documents required for such set-up: Address Proof and ID Proof, PAN Card, of all the directors and shareholders, Utility bill of Registered Office.
  • Public Limited Company
    A form of organization that calls for the general public for investing and issues shares giving away limited liability. These shares can be easily bought, sold and transferred. A minimum of 7 shareholders and at least three directors are needed to form such company and should meet the requirements of minimum paid-up capital of Rs.5 lakhs. It can raise share capital from the existing or new investors, if required. A listed company has a large number of shareholders and the company’s performance is observed by the general public and financial institutions.
    Documents required for such set-up: Address Proof and ID Proof, PAN Card of all the Directors and Shareholders, Memorandum of Association and Articles of Association, Digital Signatures (DSC) & Director Identification Number (DIN) of all Directors’ Utility Bill of Registered Office.
  • Un-Limited Company
    It is a corporation formed with or without share capital where the shareholders are jointly and individually responsible to settle the debts of any form.

Though there are several types of businesses entities, the common objective of all these business models is to earn profits. The parameters for selecting the type of business setup depends on its nature and duration for which you intend; eg. If you want limited liability then proprietorship of LLP is a better option, the industries, which usually require huge funds can go for a Public Limited set-up. However, the feasibility for setting up and for changing the business set-up can be crosschecked by a competent law firm.

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