A business structure is the legal framework of a company that determines its day-to-day business activities. A corporation, for example, is a business structure, but a single proprietorship is not.
What are the different types of business structures?
Sole Proprietorship
A sole proprietorship is the most common business structure in India. It’s owned and run by a single person. However, as the sole proprietor, you’ll be liable for the business’ debts and liabilities.
This means your personal assets, such as your home or car, could be at risk if the business fails. Therefore, it’s important to keep good records and make sure you have a sound understanding of the business before you start.
Example: Mr. Prem wants to start a small retail business selling clothes and accessories; so he decides to register his business as a sole proprietorship for two reasons
- He is the only owner.
- He wants to keep the registration process as simple and hassle-free as possible.
Partnership
A partnership is when two or more people own a business together. They share profits and losses, and are legally responsible for the business’ debts and liabilities. Having multiple owners often makes for a partnership.
A partnership is a good way to run a business because it allows multiple people to own it and share in the profit and loss. A partnership is a great way to get experience in business, and it’s often the case that multiple people own a business together and split the profits.
Example: Mr. Yashem and Mrs. Zen decide to start a software development company together. They decide to register their business as a partnership so they can share profits and losses and work together to manage the company. This will enable them to be more flexible with their business model and future plans for expansion.
One Person Company (OPC)
An One Person Company (OPC) is a way to start a private company with a single person.It was introduced in India to help entrepreneurs and provide the benefits of a private company to individuals who want to start a business.
In an OPC, the owner is the sole director and shareholder, and has limited liability for the company’s debts and liabilities.He decides to register his business as an OPC. This way, he only has to worry about personal liability, but also gets the benefits of a private limited company.
Limited Liability Partnership (LLP)
An LLP is a hybrid of a partnership and a private limited company. It has the benefits of both structures, allowing partners to have limited liability while still sharing profits and losses.
It’s a popular choice for professional services firms, such as law or accounting firms, that want to limit their personal liability.
Example: Ms. Amirthi, Mr. Balu, and Mrs. Catherin, all Chartered Accountants, decide to start a partnership firm providing accounting and tax consulting services.
They decide to register their business as a Limited Liability Partnership (LLP) as it provides them with the many benefits of a partnership and a private limited company but limits their personal liability.
Private Limited Company
A Private Limited Company is a common and preferred type of business entity in India. It offers various advantages such as limited liability, clear management structure, less compliance burden, etc. The legal aspects of this business entity, such as conducting board meetings, changing directors, and expanding into new ventures, are regulated by the Companies Act 2013. The applicant has to visit the Ministry of Corporate Affairs (MCA) website to complete the registration process for this legal entity.
The following are the requirements to register as a private limited company:
- Minimum of 2 directors
- Registered office address in India
- Preparation of Memorandum of Association and Article of Association
- Obtaining digital signature certificates for the directors
Section 8 Company
NGOs or Non-Profit Organizations are companies that engage in charitable activities. Their main goal is to promote arts, science, education, protect the environment, and assist the poor.
To register as an NGO, a company needs at least two shareholders and directors. Usually, the shareholders also act as directors. This type of company does not need any capital. One of the directors must be a resident of India, and the company must have an Indian address for registration.
Public Limited Company
To grow bigger, an organization can benefit from becoming a public limited company, as it gives them more advantages for expansion. But this business structure also has more legal requirements to follow. The Companies Act 2013 sets the rules for this business structure.
Conditions to form a Public Limited Company:
- At least three directors
- Minimum seven shareholders
- Registered office in India
- Drafting of MoA and AoA
- Minimum Paid-up capital- 5 lakhs
- Authorized share capital as per governing legislation
- Digital signature certificate of the directors
How does business structure affect management and operations?
Organizational structures are key to helping businesses operate efficiently and effectively. They can help divide employees and functions into different departments, so the company can do multiple operations at once.
A good structure lets employees know how to get their jobs done, which creates a sense of unity and team spirit.
How should you choose a company structure for your business?
The business structure you choose affects the company in many ways. This includes daily operations, taxes, and the amount of personal assets that are at risk.
Choose a business structure that offers the right combination of legal protections and rewards. There are many factors to consider, including the legal and financial aspects. There are also moral and practical considerations.
Here are a few things to consider when deciding which business structure is right for you:
- Different business structures have different tax benefits and drawbacks.
- The best business structure for your business will depend on your needs and circumstances, as well as your legal and tax background.
- It’s best to talk to a lawyer or accountant before deciding.
FAQs
How many types of company registration are there?
- Sole Proprietorship Registration
- One Person Company Registration
- Partnerships Firm Registration
- Private Limited Company Registration
- Public Limited Company Registration
- Limited Liability Partnership Registration
- Section 8 Company Registratio
How to structure a company?
To structure a company in India, you can choose from the various types of company registration models outlined in this article. Each type has its requirements and benefits, so it’s important to choose the one that best suits your business needs
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