Business Entity Formation
If you are planning to start your business, one of the first questions you need to ask yourself is what kind of business structure or trading vehicle suits your needs? The business structure or the trading vehicle will define how the business is organized and dictate what rights and obligations the business has. Depending on the stage of the development of your business, different structures may be more or less suitable. For most start-ups and small businesses, the most common structures are sole proprietorship, partnerships, and companies - private & public. Here we shall explore these options
Our services in this area
Company registration as per the provisions of the Companies Act 2013 & all COMPANY LAW RELATED COMPLIANCES
Registration of Partnership firms (registered or unregistered) under the Indian Partnership Act, 1932 and all related regular & event-based compliances
Registration Limited Liability Partnerships (LLP) under the Limited Liability Partnership Act, 1908.and all related regular and event based compliances
Registration of charitable organizations such as Trusts, Societies and Section 8 companies and all related regular & event based compliances
Conversion of entities such as partnership firm into LLP / company or company into LLP etc.
Types of Entities
What is a Sole Proprietorship?
Under this structure, a single individual owns and operates the business, with no legal distinction between the owner and the business. This allows a lot of control over the decisions, a straight line to all profits and very few compliances, but also direct responsibility & unlimited liability.
What is a Partnership?
As opposed to a sole proprietor, in a partnership model you and your partner/s share the responsibilities of the business. There are two main types of partnerships: a general partnership firm, and a limited liability partnership.
No legal formalities are required to create a sole proprietorship other than an appropriate licensing to conduct a business and registration of business name if it differs from that of the sole proprietor.
The procedural requirements for setting up a partnership depends on the type of firm you want to register:
Partnership firm : Partnership firms are created by drafting a partnership deed among the partners. The partnership deed is required to be registered for setting up the firm. Partners are personally liable.
Limited Liability Partnership : LLP is an alternative corporate business entity that provides the benefits of a company but allows its members the flexibility of organizing their internal management on the basis of a mutually-arrived agreement (LLP agreement). An LLP is a separate legal entity, thus limiting the liabilities of the partners involved.
The business compliances are very easy & less cumbersome in the case of a sole proprietorship. The owner reports income / loss from this business along with personal income tax return.
The business compliances in an LLP involve mandatory filing of annual statement of solvency and annual return with the ROC. However, no such annual filings business compliances are required in a normal partnership. The income tax returns in both the forms of partnerships are separate from that of the partners, unlike in the case of sole proprietorship.
As per the Companies Act, 2013 (the “Act”), a “Company” means a company incorporated under the Companies Act, 2013 or under any previous company law. A company being the creation of law, is an artificial person having legal and distinct status from that of its members.