India is now in the crux of global industrialization phenomena. The growing opportunities, expanding foreign relations, penetration of the World Wide Web to smaller cities, increasing widespread awareness about learning and increase in the number of “young population” in the country has given India the spotlight as one of the attractive centers for global investments. Off late, the practice of starting one’s own business in India has been given a big thumbs-up as opposed to the situation a decade earlier. India is one of the front-runners in the global startup environment and this has made investors from all over the world to set their sight on some of the promising startups from the country.
Types of Business in India
The majority of the startup-entrepreneurs population in India is very young and fresh-out-of-college bunch. Thanks to the Internet and its endless pool of resources, these enthusiasts don’t essentially feel the need to get a proper business education. There are several tutorials, blogs and websites in the Internet designed and run targeting that population and they help them understand the basics and do’s and don’ts of a business. One such basic knowledge that everyone should possess before thinking about a business is the various types in it. These types are majorly classified based on the ownership of the company.
In this blog, we will see in brief about the various types of business structures practiced in India.
- Sole proprietorship
This is the good-old model of business structure in India. Non-academically speaking, sole proprietorship is one type of business where the business owner is the master and slave of their venture. The business owner has the complete creative and financial control over the company and takes sole ownership of the profit and loss as well. This method is best suited for individuals who wish to start a business based on one-man work in a small scale. The biggest advantage is that it is the cheapest and the easiest way to start a business and the disadvantage is that it is difficult to manage when the business is expanding.
A business based on partnership is formed when two or more interested people come together to establish and run a company. They share the ownership, responsibilities and finances of the venture and this model is ideal for medium to large companies. In India, a minimum of 2 and a maximum of 20 people can be made as business partners and they agree upon terms through a written, signed and legally processed contract. The advantages and the disadvantages of this association depend on the partnership. While a good one can help the business grow leaps and bounds, a single dysfunctional cord in the relationship is enough to wreck the entire ship.
- Public Limited Company
Public limited companies are setup adhering to The Indian Companies Act of 1956 and the capital is funded by its members through shares. A public limited company should have a minimum of 7 members and it has a separate legal existence apart from its members. However the shares of the members can be freely transferred without advising with the members or with rest of the company. The designation of members (share holders) shouldn’t be confused with that of the board of directors who will actually manage and run the company. The members have no say on how the company should operate. This type of ownership minimizes the risks of the shareholders but the biggest disadvantage is that there is more room for fraudulent activities.
- Private Limited Company
The definition of a private limited company is also defined by The Companies Act of 1956 and it is almost similar to the concept of Public Limited companies except that the members’ shares can be transferred only amongst fellow shareholders. A person looking to setup a private limited company should register with the Registrar of Companies and the size of the board of members can be anywhere between 2 to 50. The size of the board of directors is also predefined- minimum of 2 and maximum of 12. The plus side of opting to own a private limited company is that it is much easier to setup than a public limited company but the downside is the members are left with limited liability.
- Limited Liability Partnership (LLP)
In the LLP, the partners can oversee the operations of the business directly and yet they have a limited liability in the actual shares of the company. A LLP can be formed with 2 or more partners (whose idea of the venture is not charity) by registering an incorporation document with a registrar. The advantages of setting up LLP include minimal requirements and easier procedures; the primary disadvantage is that the idea of LLP garners too many advantages for the partners.
- One Person Company
A one person company (OPC) is a private organization that has only one shareholder as well as one director. This concept was introduced in India by the Companies Act, 2013. The owner of the company should be resident citizen of India and shouldn't be a minor. The concept of OPC combines the benefits of registering a company as private and yet one person can claim all its shares. People mistakenly use Sole proprietorship and One Person Company interchangeably. But the major disparity the two would be that, when the business fails, in case of a One Person Company liability is limited to only the business assets.
With this age of abundant information made available all over the Internet it is easy for anybody to do their homework and setup their venture. But to eventually face the day-to-day challenges is a whole new story. Seeking the advice of financial and legal experts will help take the burden off your shoulders. We, at MyEfilings, care for your organization and offer one stop shop business services for your business needs. From registering the company’s name to managing the finances, we will take care of all the paperwork in the background so that you can stay more focused on the actual objective of your dream venture. Get in touch with us to know more.