It is necessary to choose your company structure carefully as your “Income Tax Returns” will depend on it. While enrolling your enterprise, remember that every company structure has different levels of compliances that must be met. For example, a sole proprietor has to register only an income tax return. Though, a company has to register an income tax return along with annual returns with the registrar of companies.
A company’s account books are to be mandatorily audited all year. Meeting certain legal compliances require spending money on auditors, accountants and tax filing experts. Hence, it is necessary to choose the right company structure when considering company registration. An entrepreneur must have a fair idea of the kind of legal compliances he or she is ready to deal with.
While some company structures are more investor-friendly than others, investors will always favor a verified and legal company structure.
How to choose a company structure while applying for company registration in India?
Let’s take a look at a few important questions, which an entrepreneur must ask himself before he or she finally decides upon a company structure.
How many owners or partners will your company have?
If you are a single person who holds the whole initial investment amount needed for the company, then a “One Person Company” structure will be ideal for you. On the other hand, if your company has 2 or more owners and both are actively looking for investment from other parties, then either an “LLP or a Private Limited Company” structure will be more suitable for you.
Should your first investment determine your choice of the specific “Company Structure”?
Yes if you need to contribute less initially, it will be wise for you to go in for a Sole Proprietor, or a HUF, or a Partnership. But, if you are sure that you will be ready to improve the setup and compliance costs, then you must opt for an OPC Company/an LLP, or a Private Limited Company.
Willing to have the whole liability of the company
Company structures like “a sole proprietor, HUF, and a partnership firm” have unlimited liability. This implies, in case of any error in loans, the complete money will be recovered from the members or partners in a profit-sharing ratio. The risk to personal assets is large in these cases.
Whereas, a “Private Limited Company and an LLP” have limited liability. This means that the liability of it’s members, is limited to the amount of contribution made by them or the value of shares every member holds.
Income Tax Rates Applicable to companies
The income tax rates applicable to a sole proprietorship and a HUF are the regular slab rates. In a sole proprietorship, the company income is clubbed with the individual’s other income.
But in the case of different entities like a partnership or a Pvt. Ltd. Company, then the tax rate of 30% is applicable.
Plans for getting money from investors
It is hard to get investments when your company structure is unregistered. Entities like an “LLP and a Private Limited Company” are trusted only when they fulfill all the necessary legal requirements. Make sure you pick the right structure, seek the help of a legal authority, so that you register under precise guidance.