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Proprietorship

The sole proprietorship is the simplest business form under which one can operate a business. It is the most popular business form due to it’s simplicity. It is used generally by micro & small businesses. It simply refers to a person who owns the business.

A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name. The fictitious name is simply a trade name- it does not create a legal or corporate entity separate from the sole proprietor owner.

Advantages
  • A sole proprietor need only register his or her name and secure local licenses, and the sole proprietor is ready for business. No other registrations are required to start a proprietorship.
  • There is no additional compliance requirement in proprietorship form. In most of the cases only income tax must be filed. In some of the states professional tax registration is required.
  • Winding of proprietorship business is very easy.
Disadvantages
  • Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.
  • Any license or registration obtained in the name of the proprietorship cannot be transferred to any other person or entity.
  • Owners cannot raise capital by selling an interest in the business.
  • Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value.

Note : Due to the more disadvantages, This form of business will be suitable only for small businesses and the unorganized sector.

Partnership Firm

A Partnership firm is a business entity created by persons who have agreed to share profits or loss of the business. This form of business is popular in small business enterprises. Partnership is an association of two or more persons to carry on a business in the capacity of co-owners. Each such person is called a partner.

All the partners share the profits and losses in proportion of their respective ownership, or as agreed between them. There two types partnership firms, registered & unregistered.

Advantages :

  • The main advantage of Partnership firm is that there is less compliance’s as compared to LLP or Companies.
  • Formation process of partnership is easy. Any two or more person capable of entering to a contract can start Partnership
  • It is very easy to dissolve the partnership firm. Any partner can ask for dissolution of firm by giving a notice. The firm can be dissolved on death, insolvency or lunacy of any partner.

Disadvantages:

  • Partners become fully liable for all claims against the firm to an unlimited extent. The partner might lose all the savings of his life on account of a loss or a mistake in business.
  • The number of partners in a firm is restricted to a maximum of twenty persons. Thus, a partnership firm may not be in a position to raise the required capital to finance its expansion plans.

Documents required for Partnership Firm formation :

As identity and address proof of the Partners, any of the following two documents can be submitted:

  1. PAN Card
  2. Passport
  3. Drivers License
  4. Aadhar Card
  5. Voters ID

Proof of the principal place of business can be established by submitting the following documents:

  1. Sale deed in case one of the Partner owns the place of business
  2. Rental agreement copy if the premises are rented
  3. Copy of latest electricity bill or water bill or property tax receipt

LLP Registration

LLP stands for Limited Liability Partnership. It is an alternative corporate business form which offers the benefits of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership.

A limited liability partnership is a legal entity, liable for the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a hybrid between a company and a partnership. But it should not be confused with limited liability company.

The main advantage of a LLP over a traditional partnership firm is that in a LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. A LLP also provides limited liability protection for the owners from the debts of the LLP. However, unlike private limited company shareholder, the partners of an LLP have the right to manage the business directly.

The following are the documents required for registration of LLP in India:

For the Partners

  1. PAN Card or Passport for Foreigners.
  2. Drivers license or Aadhar card, residence card or election identity card or any other identity proof issued by the Government.
  3. Less than 3 months old bank statement or telephone bill.

Registered Office Proof

  1. The authorization from the Landlord (Name mentioned in the Electricity Bill or Gas Bill or Water Bill or Property Tax Receipt or Sale Deed) to use the premises by the company as its registered office. This is usually referred to as NOC from Landlord; AND

Proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, which is not older than two months.

One Person Company

Companies Act defines a one-person company as a company that has only one person as to its member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. So, an OPC is effectively a company that has only one shareholder as its member.Such companies are generally created when there is only one founder/promoter for the business. Entrepreneurs whose businesses lie in early stages prefer to create OPCs instead of sole proprietorship business because of the several advantages that OPCs offer.

OPC is suitable only for small business. OPC can have maximum Paid up share capital of Rs.50 Lakhs or Turnover of Rs.2 Crores. Otherwise OPC need to be converted into Private Ltd Company.

Private Limited Company

Private Limited Company is a business entity held by small group of people. It is registered for predefined objects and owned by a group of members called shareholders. Startups and businesses with higher growth aspiration popularly choose Private Company as suitable business structure.The business entity gets recognised as a Company through its registration under Companies Act of 2013 in India. The governing body is Ministry of Corporate Affairs, widely known as MCA.

Advantages :

  • A private limited company provides limited liability protection to its shareholders. In case of any unforeseen liabilities, it would be limited to the company and not impact the shareholders.
  • As the ownership of a company is represented by shares, the ownership of a company can be transferred to any other legal entity or person in India or abroad easily – in part or whole. The directors can also be replaced to ensure business continuity.
  • A company can raise equity capital from persons or entities interested in becoming a shareholder. Entrepreneurs can raise money from angel investors, venture capital firms, private equity firms and hedge funds.

Another advantage of a private limited company is its continued existence, even after the owner dies or leaves the business.

Documents required :

  • Identity Proof- PAN (Indian Nationals ) or Passport (Foreign nationals)
  • Proof of Address- Passport / Drivers License / Election ID / Ration Card / Aadhar ID
  • Proof of residence- Bank Statement / Electricity Bill / Phone Bill (It should not be older than 2 months)

Proof of the principal place of business can be established by submitting the following documents:

  • The registered document of the title of the premises of the registered office in the name of the company; OR
  • The notarized copy of lease / rent agreement in the name of the company along with a copy of rent paid receipt not older than one month;

 in addition to the above, the following must also be provided as proof of registered office:

  • The authorization from the Landlord (Name mentioned in the Electricity Bill or Gas Bill or Water Bill or Property Tax Receipt or Sale Deed) to use the premises by the company as its registered office. This is usually referred to as NOC from Landlord; AND
  • Proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, which is not older than two months.

The following are the documents required for registration of LLP in India:

For the Partners

  1. PAN Card or Passport for Foreigners.
  2. Drivers license or Aadhar card, residence card or election identity card or any other identity proof issued by the Government.
  3. Less than 3 months old bank statement or telephone bill.

Registered Office Proof

  1. The authorization from the Landlord (Name mentioned in the Electricity Bill or Gas Bill or Water Bill or Property Tax Receipt or Sale Deed) to use the premises by the company as its registered office. This is usually referred to as NOC from Landlord; AND

Proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, which is not older than two months.

Public Limited Company:

Incorporating a Public Limited Company is a suitable option for large scale businesses that require huge capital. There should be a minimum of seven members with no limit on maximum number of members/shareholders for starting a Public Limited Company.Usually, Public Limited Companies get listed with stock exchanges to raise capital from the general public. This is why Public Limited Companies have to comply with multiple regulations of the government and starting a public limited company becomes a cumbersome process.

Advantages :

Public Limited Company can raise funds from individuals as well as from financial institutions. The funds may be raised via equity shareholding, preference shareholding or debentures.

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