Understanding Types of Business Entities to Set Up in India
India, without any doubt, is emerging as a significant market in the world economy. While the older and bigger companies have already established on the global market, the smaller businesses and startups are operating at best in bringing the World to India. It becomes essential for all the young entrepreneurs to be completely thorough in terms of the kind of business model they wish to set up, and analyzing the different methods to take their firm through to the topmost positions. It is to stay put and form robust associations. This article provides information about different types of Business Entities to Set Up in India.
Before discussing anything else, it is significant for all of us to first know what a business is. Business, also known firm or company, is an entity related to the production of goods and/or services to the consumer.
The Concept of Business Entities in India
While starting up a business in India, one has to think about what type of business model would best suit the purpose of the business one is planning to build, securing the payment of important taxes, verifying the liability of the owner, investment, savings and compliance burden. Around the world, there are three types of business structure, which are: single proprietorship, partnership and corporation.
India is a country of diversity, constituting a mixed economy. Different types of business entities such as private and public limited companies, sole proprietorships, limited liability partnership companies, wholly-owned subsidiaries of foreign companies, joint venture companies, etc are available in India. For the sake of clarity for the novice businessmen, and to reduce the complexities of the varied types of business entities, in India, we mostly have the following four kinds of legal business structure, which both the Indian and the foreign companies can form.
Any company in India has to file with the relevant government authorities to conform to the nation’s laws. Before learning how to register a company in India, it is helpful to have a basic understanding of the different types of business structures in India, as well as what is necessary to keep compliant with each business structure. These are the types of business entities to set up in India:
- Sole Proprietorship
- Limited Liability Partnership
- Private Limited Company
- Public Limited company
Before we learn how to register a company, let’s try and understand the types of business entities to set up in India.
|Company type||Ideal for||Tax advantages||Legal compliances|
|Limited Liability Partnership||Service-oriented companies or businesses that have low investment needs||Advantages on depreciation||Company tax returns to be filed ROC returns to be filed|
|Single Proprietorship||Single owners want to limit their liability||Tax holiday for the initial 3 years under Startup India Higher benefits on depreciation No tax on dividend distribution||Companies returns to be filed Limited ROC compliance|
|Private Limited Company||Entities that have a high turnover||Tax holiday for the initial 3 years under Startup India Higher benefits on depreciation||Entities tax returns to be filed ROC returns to be filed An audit is mandatory|
|Public Limited Company||Businesses with a high turnover||Tax exemptions||Business tax returns to be filed. Mandatory Audits|
Why Choosing the Right Business Structure in India Matter?
Choosing the best business layout in India is a significant part of operating a profitable organization in India. The proper business framework will allow your company to run efficiently and set your company up to meet its specified goals. Knowing which business structure to register in India is crucial for different reasons:
- The business structure you choose will have a direct impact on how your business will be taxed.
- The business structure you select will determine what steps you must take to remain compliant with the government in India.
- The type of business structure you select can affect the outside perspective of your company and whether an investor chooses to do business with you.
Determining the right company structure for your business is as essential as any other business-related activity. The right business framework will allow your company to run efficiently and achieve the business objectives you need. In India, every company must register themselves as part of the required legal compliance.
Considerations When Registering a Company in India
There are many valuable factors to consider when registering a company in India, including the following:
- The number of owners – The number of owners affects whether certain business entities are available. A-One Person Company may be best when there is a single owner. However, if the business has several owners, a Limited Liability Partnership or Private Limited Company may be more suited.
- Level of legal compliance – The business owner must carefully consider what steps will be necessary to remain compliant at all times. Some business types require additional steps and obstacles to achieve compliance.
- Liability – A key consideration when registering a company in India is the extent that the owner wants to be liable for the company. Single proprietors and partners have unlimited liability, so creditors can personally persuade them for not paying company debts. Companies have limited liability, typically in the number of contributions they have made to the business or the value of their shares.
- Value of initial investment – If the owner desires to create a minimum initial investment, a Single Proprietorship, Hindu Undivided Family, or Partnership may be the best choice. However, if the company owner is sure that he or she will be able to recuperate the setup and compliance costs, a Private Limited Company is also an appropriate selection.
- Tax structure – Sole proprietors are taxed at an individual rate, and the business income is added to other income of the individual. A higher tax rate may be executed to companies.
- Investor contributions – It is difficult for unregistered businesses to obtain funds from outside investors. LLPs and Private Limited Companies are trusted more and may be more likely to receive investments than other types of companies.