If you’re thinking about starting a business, then you are at right place to decide whether you should start business individually or in partnership and which license are required for business.
If you are thinking to start business individually then you can start business as sole proprietor or one person company and if you wants to start business in partnership with two or more persons then you can opt for following types of business:
- Partnership firm
- Limited Liability Partnership
- Company (Private/Public or any other)
- NPO (Non-Profit Organisation)
LICENSE / REGISTRATIONS REQUIRED FOR STARTING BUSINESS:-
(A) FOR SOLE PROPRIETOR:- Starting a sole proprietorship requires no legal formalities or registration, However business licenses are required by central government /state government to be taken before starting business:-
1. Food Business Operator License – Required for food businesses
2. Shop & Establishment License – Required while operating shops and commercial establishments
3. GST Registration – Required as per GST turnover limit based on the type of business or voluntary
4. ESI/PF Registration – Required for most businesses having employees
5. Trademark Registration- For securing Brand
6. Business Registration Number (BRN)
7. Import export code: For export and import businesses
(B) FOR ONE PERSON COMPANY:- The separate legal entity of the OPC gives protection to the single individual who has incorporated it. The liability of the member is limited to his/her shares, and he/she is not personally liable for the loss of the company. Thus, the creditors can sue the OPC and not the member or director. One person company needs to be registered at the CRC (Central registration centre). So if you want to start OPC then you need to get registration under companies act 2013 in addition to the license to be obtained as required to sole proprietor.
(C) PARTNERSHIP FIRM:- There are two types of partnership firms, registered or unregistered partnership firms. Registration of partnership firm is not mandatory but is advisable to register partnership firm with registrar of firms. A partner in a registered partnership firm has a right to file a suit against the said firm or any partner within the firm and partners also can claim set-off. For successful registration of business, partners need to take all licenses also which needs to be taken by sole proprietor in addition to registration with registrar of firms.
(D) LIMITED LIABILITY PARTNERSHIP FIRM:- The concept of LLP was introduced in India in 2008. Incorporation of LLP gives benefits of both partnership firm and company. LLPs exist as distinct legal structures from the owners. All the obligations either for repayment of debts or lawsuits incurred by LLP, lie on the firm and not on the owners. An LLP, as a seperate legal entity, can sue its name and is also vulnerable to be sued by others. The partners are not liable to be sued for dues against the LLP. As per LLP act 2008 LLP should be registered with CRC.
(E) Company (Private/Public or any other):- A company is artificial person created by law which have its separate legal existence. When it comes to ownership and ownership sharing, a Private Limited Company offers more flexibility for the promoters as compared to an LLP. Companies can be registered as private company/public company. As per Companies Act 2013, Company should be registered in CRC.
DIFFERENCES BETWEEN PARTNERSHIP FIRM/LLP/COMPANY:- Before choosing type of business entity we should understand the benefits of each entity and differences between them:-
| BASIS | PARTNERSHIP FIRM | LLP | COMPANY |
| Act | Partnership Act 1932 | LLP Act 2008 | Companies Act 2013 |
| Contribution | No minimum amount required | No minimum amount required | No minimum requirement but company should have authorized capital at least of Rs. 10,000 |
| Registration Requirement | Registration is optional | Registration is compulsory | Registration is compulsory |
| Perpetual Succession | No Perpetual succession, continuation of partnership depends on partners | LLP have perpetual succession, partners may come and go | Company have perpetual succession, |
| Foreigner partnership | Foreigner can not become partner in firm | Foreigner can become partner | Foreigner can become director/shareholder |
| Compliances | There is no compliance | There is very less compliances | There is High Compliances |
(F) NPO :- A not-for-profit organization is an organization that focuses on a particular social cause, and all the money earned or donated is used in pursuing its objectives. Unlike for-profit corporations, not-for-profit organizations do not distribute their surplus revenues to their owners. Instead, they use the funds to pursue a specific social cause.
There are 3 types of NPO Registration:-
1. Trust
2. Society
3. Section 8 company
To understand types of NGO , differences between trust ,society, section 8 company is summarized below:-
| BASIS | TRUST | SOCIETY | SECTION 8 COMPANY |
| Law/Act Applicability | Indian Trust Act/ Bombay Public Trust Act | Societies Registration Act, 1860 | Companies Act |
| Members Requirement
|
Minimum 2 members | Minimum 7 members | Minimum 2 members |
| Root Document | In case of trust root document is Trust Deed | In Society defining document is Memorandum of Association and Rules & Regulations | In Company defining document is Memorandum of Association and Rules & Regulations |
| Legal Title | Legal Title of the property of trust vest in hand of trustees. | In society, all properties are held in name of society. | In section 8 company all properties are held in name of Company. |
| Revocable/Irrevocable | Indian public charitable trust are generally irrevocable | Societies can be dissolved with consent of members. | Section 8 company may be dissolved |
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Disclaimer:- The entire contents of this document have been prepared on the basis of relevant provisions and rules and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.
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