What is the best business structure in India?

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  • Published date: July 6, 2020
    • Navrangpura, Ahmedabad, Gujarat, India [ Ad Id - 99903 | Ad Views - 13 ]

Many of the aspiring individuals are eager to start their firms in India to explore their capabilities. However, many of them may not be sure as to which type of entity should I have for Indian business as there are various different types of business entities. The selection of the type of entity becomes a tedious task when there is a lack of knowledge regarding the type of business. So, proper thought should be given for deciding regarding the type of business entity you can start in India.

If you are thinking too much about which type of entity should I have for Indian Business, then the following information given below will help you out in the selection of the type of entity.

Comparison of various business entities in India:


Proprietorship

A proprietorship firm is a business entity in the name of a single person. The management, operations, business, and all the controls of different things are done by that person. The person owns the whole business. There are very few legal formalities to start a proprietorship firm.

Partnership firm under Partnership Act 1932

In a Partnership firm, a business organization is formed by two or more people and divides the profit ratio in a proper mutually agreeable ratio. While registering the business under the partnership Act, you need to mention the nature of the business, capital invested by each partner, profit ratio sharing agreed by all partners, etc.

Limited Liability Partnership under LLP Act

Limited Liability Partnership under LLP Act incorporates the single form of organization as well as a partnership firm. This type of firm is nice for the partnership firms to get better profits sharing.

The company under the Companies Act 2013

A company is an entity, which is having some legal obligations to do certain commercial activities and generate profits. It generally has common seal perpetual succession, shares which can be transferred easily.

Society under the Societies Act

According to the societies Act, a society is created by 7 or more people for any purpose like scientific, literary, charity, etc. Society can be unregistered or registered.

Branch of a foreign company

A foreign company can easily start their branch in India by just getting the approval through Reserve Bank of India and then foreign company registration with ROC. As these branches are considered a foreign entity, they are subjected to a 40% income tax.

Questions to ask for decision making

1. What is the expected sales turnover in the business?
Sales turnover presents the total income of business done by a company in a specific period of time.

2. What is the possibility of liability coming up?
Liabilities are the obligations or the financial debts that will arise during doing the business. It is necessary to know all the possibilities of the liability that a business may come across.

3. Is the requirement for the short term?
Are the requirements of the business on a short term basis or they will be for a long term basis.

4. How many owners of the entity?
It is necessary to know the number of owners in the business. Along with it, one must also check the stake involved in each of the owners in the business.

5. Are persons owning and managing separate entities?
It is important to know that the different entities involved in the business are managed and owned by a single owner or by different owners.

6. Taxes applicable
It is very important to find the taxes applicable to each of the businesses. Proper knowledge of the taxes helps in avoiding further problems.

7. Need for retention of earnings
Many of the businesses do make nice profits, however, many times they find it difficult to retain the earnings. So, knowing the idea of retention of earnings becomes important to make a firm profitable.

All these important points will surely help in doing the proper selection of the type of entity. Considering all the facts, you have to make a firm decision before taking further steps.

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