Every startup while starting a business generally faces a dilemma, whether to opt for the Limited Liability Partnership (LLP), Private Limited Company, One- Person Company or Sole Proprietor. Every type of business registration entity has its own merits and demerits. Each type of entity has its own process of company registration and it will determine who will share ownership of the business, management of the business, the tax levied on business and members responsible for business’s debts.
What does start-up mean?
Start-up means starting a new business, irrespective of size, started by 1 or a group of an individual. The concept behind any start-up is offering a new product and services or innovating pre-existing products/services into something better.
Before coming to the startup, know about Why company registration?
Types of Business Registration
It is the simplest form of business entity, which is popular among solo business owners. Business and owner both will have the same entity and expenses or income from the business will be included on personal income tax return. It is easy to form and cost-effective as well. It is the best option to test a business concept. Owner will be liable for all business losses. In case of bankruptcy of the business, an owner will personally liable. Moreover of business registration of sole proprietor is not required.
It is suitable for business with no or few employees, such as consultants, who can manage legal risks with proper insurance or do not have assets to protect.
One Person Company
Traditionally businessman prefers one-person companies ( OPC ) than the sole proprietor. In one person company, all the shares of the company are managed by one person. If the turnover of the company exceeds Rs 2 crores or share capital exceeds 50 lakhs then OPC is required to convert into a private limited company.
It is another easy to form and cost-effective business configuration. There are tax advantages on the personal tax return. There are 2 kinds of partnership: general and limited. In general partnership, every partner is equally liable to the creditor and in the limited partnership, their liability is generally limited to an amount of invested shares in the company. The major drawback of partnership firm is every partner are equally liable for each other work.
It is best suited for the real estate industry.
Limited Liability Partnership
LLP is a new hybrid concept of the company and partnership that provides limited liability to the partners and corporate structure. It is suitable for professional services. However, it is not suitable for startup, whose looking for VC( Venture Capital ) funding. To have shares in LLP, one must become a partner in the firm.
Private Limited Company
Private Limited Company is a most adaptable structure that is popular among businessman. As it provides the liability protection that corporations will enjoy without double taxation. The company will have a separate legal entity. In this type of business configuration, one has to pay self-employment tax as per share withdraw from the company.
Difference between LLP Vs Company Vs Partnership Vs Proprietorship
|No. of person||Minimum 2|
No Maximum Limit
|Minimum 7 public/2 Pvt.|
|Separate Identity||Yes, LLP and partners are different.||Company and members will have a separate entity||No, partnership and partners are the same.||No separate legal entity|
|Liability||Partners have limited liability||Members have limited liability.||Partners have unlimited liability||Owner have unlimited liability|
|Management Power||Lies with the partners.||Lies with the Board of directors.||Lies with the partners.||Lies with the Owner.|
|Audit||LLP, whose turnover does not exceed, in any financial year, Rs.40,00,000 or whose contribution does not exceed Rs.25,00,000, is not required to get its accounts audited.||Accounts are to be audited as per Company Act provisions.||Partnership, whose turnover exceeds Rs.1 Cr. Is required to get its accounts audited.||Audit of accounts is not mandatory.|
|Regulation for business registration||LLP is regulated under LLP Act, 2008 by MCA.||A company is regulated under Companies Act, 2013 by MCA.||A partnership is regulated under the Partnership Act,1932 by MCA.||Not regulated under any Act.|
Every type of business entity has its own procedural for company registration and will have a separate set of rules and regulations. Therefore, consider all the aspects and Steps To Register A Startup Company that will affect business and then decide accordingly.