After deciding to start a business the first and foremost thought that comes to mind is how to register a company in India. It is very simple and can be done even through online. But before registering one must make sure about which type does his business fit in. The prime point when starting a business is to decide on which type of business entity you will belong to. There are many types of entities like the Partnership, Proprietorship, Limited Liability Company (LLP), nonprofit and corporation. The business structure’s type depends on many factors like the company’s goal, workforce and so on. Each type of business entities has its own advantages and disadvantages. So choose accordingly as which fits you the best and take the smart move.
The LLP in India merges the advantage of the partnership and the company into the sole form organization. It has many advantages attached to its credit when compared to the partnerships, proprietorships and other companies.
Let’s look at some of the pros and cons of Business Entities and they are as follows.
- Sole Proprietorship – They are easy to create. The business is owned by the sole owner. There are no fees linked to the business creation and the best part, the owner of the business can claim the loss through personal income taxes. It also has drawbacks like the complete loss is faced only by the owner and also he is responsible for all the business profit’s taxes.
- General Partnership – Just like the Sole owner, this type is also easy to create and maintain easily. This type also gives the freedom to claim the loss from the income tax. In the case of debt or loss in business, all the owners are accountable for it.
- Limited Partnership – This is one of the most popular and sought after type as it attracts investors to invest only a portion of the investment. They are entitled to enjoy everything in limited liability and also leave the business without any worry or stress. It is suited more to real estate investment and has limited choices and options.
- Limited Liability Company (LLC) – They enjoy limited business debts even though they control many parts of the business. They can choose the taxation method for LLC either as a corporate or partnership. The only drawback is that it is expensive compared to other business entities.
- Regular Corporation – The business owners enjoy limited liability when it comes to debts or loss. But it comes with the complicated paperwork which needs to be filed in the state secretary.
When you are developing a business, you need to consider several things like the profits, division of liability, taxes, control of the business and many more. A deep understanding and complete study are required before getting involved in any of the business entities.
The corporation offers a good benefit to other business and that is the protection of liability. The shareholders are not at risk of losing their personal assets because of the loss or debt faced by the company as the corporations are believed to be the separate legal entities of the company. It is the other scene in the case of sole proprietorships and partnerships as they are responsible for all the company’s legal and debt responsibilities and may also lose personal assets in case of bankruptcy or any other bad circumstances.
Access to Funds
The corporations are given the freedom to raise more funds than any other business forms. They can also raise the money by selling the stocks to cover debts or manage loss. But in the case of business partners and sole proprietors, they must find their own way to raise money or take loans. Selling stocks is easier and time saver whereas working on our own or taking loans is time and energy-consuming.
Corporations enjoy tax benefit when compared to partnerships and sole proprietorships. The corporation’s owners pay the taxes on the bonuses, salaries, and dividends that are earned from the corporation. Also, the corporations are exempted from the tax paid as compensation to shareholders or employees and that payment can be deducted as the business expense. The corporate tax is much lower when compared to the personal income tax.