Literally, a start up means ‘the action or process of setting something in motion’. Elaborating, it can be defined as a young business venture that is just beginning to develop. Startups are usually small and initially financed and operated by a handful of founders or one individual. Generally, it offers a product or service that is very unique and presently not available in the market.

Often, all entrepreneurs before starting their new business venture are confused about the forms or structure of business that shall suit their needs and requirements. Therefore, in this article, we shall discuss about the various forms of business including their advantage and disadvantages, applicable tax rate and compliances on them and finally, the registrations/certificates that a start up is recommended to take.

I. Forms of Business Structure with Advantages and Disadvantages

1. SOLE PROPRIETOR 

A sole proprietor is the easiest form of business with minimum compliance and single person as the owner.

ADVANTAGES
·  Easy to manage as there is minimum compliance.
·  Cheap to start a sole proprietor as Registration under Shops and Establishment Act of the respective state would be enough excluding any business specification license.
·   Have direct control and minimal chances of management conflict.
DISADVANTAGES
·  Oneness of business and sole proprietor i.e. the sole proprietor is personally liable to pay off any debt. This is one of the reasons why start ups generally don’t opt for sole proprietorship form of business.
·   Raising capital is difficult as people generally don’t rely on sole proprietor.
·  Continuity of business is co-extensive with the life of the sole proprietor.

2. PARTNERSHIP  

ADVANTAGES
·     Easy to manage as there is minimum compliance.
·   Start-up cost is low as compliance would involve drafting of partnership agreement, registration of partnership deed and partnership firm.
·   More capital can be inducted by various partners.
DISADVANTAGES
·  Oneness of business and the partners i.e. all the partners are personally liable to pay off any debts.
·   Continuing risk of disagreements and friction among partners and management.
·  Each partner is an agent of the partnership and is also liable for the action of others.

 3. LIMITED LIABILITY PARTNERSHIP  

ADVANTAGES
·  Separate legal entity overcoming the weaknesses of the partnership firm.
·  Most of the provisions of the Limited Liability Act, 2008 vest the mutual right, liabilities and obligation upon the partners.
·    More capital can be inducted as bank; financial institutions, etc. rely on LLP structure.
DISADVANTAGES
·    Penalties for non-compliance of the provisions of the Limited Liability Act, 2008.
·   Public Disclosure of operations.

 4. COMPANY  

ADVANTAGES
·         Separate legal entity with limited liability of the promoters.
·         Access to wider capital and skills base.
·         More capital can be inducted as bank; financial institutions, etc. rely on LLP form of structure.
DISADVANTAGES
·         Penalties for non-compliance of the provisions of the Companies Act, 2013.
·         Public Disclosure of operations.

II. Taxability On Different Forms Of Business  

S. No. Business Structure Applicable Tax Rates
1. Sole Proprietor Tax Rates are as applicable to individuals.
2. Partnership Flat 30%
3. Limited liability partnership Flat 30%
4. Company Companies with total turnover upto Rs. 50 crores at 25% and with more than Rs. 50 crores at 30%

 III. Compliances

S. No. Business Structure Compliances
1. Sole Proprietor Voluntary registration under Shop and Commercial Establishment Act of the respective state.
2. Partnership Drafting of partnership agreement registration of partnership deed and partnership firm with the SDM of the respective district (Voluntary).
3. Limited liability partnership Compulsory registration under Limited Liability Partnership Act, 2008
4. Company Compulsory registration under the Companies Act, 2013

 IV. Recommended Licenses/Registrations

 1. Registrations of the mark and logo used that is the important essence of the business.

2. Registration under Patent Act should be made in case there is any innovation.

3. Micro, Medium and Medium Enterprises (MSME) Certificate as governments grants various rebates and subsidies to MSME business.

4. Registration of start up under DIPP.

5. GST Certificate in case applicable.

6. Import-Export Code (IEC) in case applicable.

7. Business specific license such as FSSAI, Liquor License, Health/Trade License, etc.

8. In conclusion, we can say that a start up is all about an innovative business idea but at the same time, legal compliances should be adhered to in true and spirit so that business can function smoothly and grow prosperously without any hassle and hindrance.

{The author is a Company Secretary in Practice and can be reached at (M) 9999952595 and (E) [email protected]

Author Bio

Qualification: CS
Company: Kajal Goyal and Associates
Location: Delhi, New Delhi, IN
Member Since: 11 Jun 2018 | Total Posts: 72
KAJAL GOYAL AND ASSOCIATES, is a Company Secretary proprietorship firm, offering its expertise and one stop solutions for all Corporate compliance requirements to the clients with a strong emphasis on ethics and ‘being on toes’. Capable delivering services related to Companies Act, FEMA, Re View Full Profile

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