When you want to Start a business in India, you need to consider many things, like what kind of business format will work best for you. The type of company you pick will affect your responsibility, taxes, compliance, and ability to raise money.
This article talks about the different kinds of Indian businesses, their pros and cons, and which might be best for different types of business situations. Read it completely if you want to establish a business in India.
Types of Business Entities in India
- Sole Proprietorship
- Partnership Firm
- Limited Liability Partnership (LLP)
- Private Limited Company (PLC)
- Public Limited Company
- Branch Office, Liaison Office, or Subsidiary (for foreign companies)
1 Sole Proprietorship
A sole proprietorship is the simplest type of business structure because it is owned and run by one person. It is best for small businesses, workers, and people trying out a business idea that will benefit the most from this.
Advantages:
- Formation Ease: Startup costs are low, and there are few rules to follow.
- Sole Control: Keeping all profits and making all business decisions.
- Benefits for taxes: Income is treated as personal income, which can be good for people who make less money.
Disadvantages:
- Limitless Liability: The owner is responsible for all debts and business responsibilities.
- Limited Capital: A business owner has to put all their money into it to get money.
- Lack of Continuity: If you start a business in India and the owner quits or dies, the business will no longer exist.
2 Partnership Firm
A partnership company is made up of two or more people who own and run the business together. It works best for small—to medium-sized businesses with a clear partnership deal.
Advantages:
- Shared Resources: When partners work together, they can share their resources, skills, and information.
- Ease of Formation: A partnership document is easy to set up.
- Flexible Rules: The rules are less strict for them than for other companies.
Disadvantages:
- Unlimited Liability: Partners are directly responsible for the business’s debts.
- Frequent Disputes: There is a chance that partners will fight.
- Limited Capital: It can be hard to get more money than the partners put in.
3 Limited Liability Partnership (LLP)
An LLP has all the good things about a partnership; the partners don’t have to worry about being sued. Firms in the professional services sector and small to medium-sized companies looking for protection from liability can opt for this company.
Advantages:
- Limited Liability: Each partner is only responsible for the amount of money they put in.
- Separate Legal Entity: The LLP is a separate legal entity from its partners.
- Perpetual Succession: If you start a business in India from the UK, the LLP stays in business even if partners change.
Disadvantages:
- Complex Rule: Setting up this business is harder than setting up a sole proprietorship or a partnership.
- Compliance Prices: These partnerships have more rules and prices than regular partnerships.
4 Private Limited Company
A PLC is a privately owned business with a formal identity separate from that of its owners. It is best for businesses and startups that want to grow and find investment possibilities.
Advantages:
- Exposure Limits: A shareholder’s exposure is only equal to the value of their shares.
- Separate Entity: It is not connected to its owners and is able to continue running its business indefinitely.
- Higher Credibility: Customers, sellers, and investors now trust and believe in you more.
Disadvantages:
- Compliance Requirements: There are stricter rules and regulations to follow.
- Expenses & Costs: Setup and management costs are higher.
- Sharing of Shares: You can only give or receive shares with the permission of other owners.
5 Public Limited Company
A public limited company is suitable for bigger businesses because anyone can buy shares in it. It is best for big companies that need a lot of money and want to grow over the long run.
Advantages:
- Capital Raising: Using public offers to get a lot of money.
- Exposure Limits: A shareholder’s exposure is only equal to the value of their shares.
- Separate Legal Entity: It will always exist and be legally separate from its owners.
Disadvantages:
- Regulatory Requirements: Strict rules and regulations to follow if you start this business in India.
- Higher Costs: It costs a lot to set up, follow the rules, and keep your public standing.
- More Transparency: You have to share your financial information with the public, which could be bad for your business.
6 Branch Office, Liaison Office, or Subsidiary (for foreign companies)
For foreign companies, this could be a branch office, a liaison office, or a subsidiary. These groups make it possible for foreign companies to start a business in India and are best for companies that want to do more business in India.
Advantages:
- Market Entry: Make it easier for people to get into the Indian market.
- Keep control: Stay in charge while following Indian laws.
- Brand Recognition: Use the name and resources of the parent business.
Disadvantages:
- Regulatory Requirements: Must follow the rules set by the Indian government.
- Certain Limitations: Depending on the type of building, you may need help to do certain things.
Choosing the Best Type of Company
1 Plans for business size and growth
- Business ideas that are small or just getting started: Sole Proprietorship or OPC.
- Professional services on a medium-sized scale: LLP.
- Private Limited Company that wants to grow and is looking for funding.
2 Capital Requirements
- Significant capital needs: Public Limited Company.
- Moderate capital needs with flexibility: Private Limited Company or LLP.
3 Administrative Capacity
- Few ways to meet legal requirements: Sole Proprietorship or Partnership Firm.
- An LLP or Private Limited Company is willing to go the extra mile in order to achieve its goals.
4 Control and Ownership
- With a sole proprietorship or OPC, there is only one owner and full power.
- A partnership or LLP is a business with more than one owner who shares power.
- Private Limited Company is a way to get investors while keeping control.
Conclusion
The best type of company to start a business in India will depend on your wants, business goals, and available funds. A Sole Proprietorship or OPC might be best for small businesses with little legal needs.
An LLP is good if you want to protect your assets from responsibility and have a lot of freedom. Most of the time, a Private Limited Company is the best way to grow and make investments. A Public Limited Company could be a good choice for big businesses that need a lot of cash.
Taking these things into account will help you pick the right business format, which will set you up for success in India. So, if you want to start a business in India from the UK, you can connect with a company like VJM Global and have a successful future for your business in India.