Which is the most suitable form of business for you? STAGE -1
Written by Lifeline on 6th September 2019
Limited Liability Partnership
Under this form of business, only the money invested by the partners would be affected. Their other assets will not be harmed in case of a setback. That indeed is the biggest benefit of Limited Liability Partnership (LLP).
LLP is suitable for small businesses, startups and other ventures that are uncertain about their success. The government of India introduced this business form as it is more secure than an ordinary partnership.
An advantage of LLP is that no compulsory audit is required. Similarly, apart from the money invested in the particular business, the other assets of the partners will not be affected.
Another benefit of LLP is that there are fewer complications. Moreover, there would be perpetual succession. Each LLP is eligible for a CIBIL score. Closing the business is easy too.
However, there are some demerits for LLP firms. Even though easy to register, LLP faces the issue of limited capital. One disadvantage is that the penalty for not submitting accounts is high compared to other companies. Similarly, LLP companies cannot go in for an IPO. Other drawbacks include neither foreign capital nor private equity can be accepted.
Difficulties may be posed by the rule that transfer of ownership in LLP companies can be done only with the consent of all partners. There are more demerits. All states in India have not recognized LLP and this type of business is unknown to international operators. This makes attracting angel funds from abroad an uphill task.
In many countries abroad, One-Person Companies (OPCs) are favoured over sole proprietorship. Here, all the shares are controlled by one person. The main advantage of OPC is that operating it is easier than other businesses. This means there are no annual general meetings or board meetings. Even when it is a separate legal entity, one person controls everything in the company.
Naturally, there are less legal complications. The only condition is that a nominee is needed. An OPC does not find it difficult to get a bank loan or other funding. Moreover, the issue of debentures also does not arise.
Another major benefit is that even if the owner passes away, the company survives.
Still, an OPC has some demerits. They include a higher amount for incorporation, no non-banking operations can be carried out and that as only one person is running the firm, a single brain will be involved. Moreover, an OPC cannot go for high turnover and no non-resident Indians can invest in the company.
Private limited company
This kind of company is ideal when there is 100 % certainty about growth. There is no big board of directors in a private limited company. But to start such a firm, PAN (Permanent account number), DIN (Director identification number) and TAN (Tax deduction and collection account number) have to be obtained. A digital signature also may be needed.
Other requirements include Articles of Association, Memorandum of Association, Initial Promoters’ Agreements and Arbitration and Consolation Clause.
Legal validity of a private limited company is ensured and it has a district ownership status. In fact, even two persons can start a private limited company. The largest number of people who can be involved is 200. They can belong to any state in India. But if at least 51% of the shares are held by the founders, the company will be safe in their hands.
There are numerous advantages for a private limited company. One is that funds will be available from around the world. There are big funding agencies based in Canada and the Arab world and investments from them can be sought. Venture funds too can be obtained from abroad.
The private limited companies enjoy perpetual succession and the management of the firm is flexible. As a result, it attracts more trust than other kinds of businesses. Incidentally, most banks are companies.
A private limited firm can grow to any size, to that of even Reliance or Tata.
A company is the main form of business all over the world. In the United States, it is referred to as LLC – Limited Liability Corporation.
However, while in western countries, less than 100 US Dollars need to be spent for starting a company, the procedures are more expensive in India. In other words, the registration process is costly in our country.
Another demerit of private limited companies is that if a firm ends up in failure, the same founder cannot start another concern.
Even though the registration process is difficult as several procedures are involved, it is not impossible.
A private limited company can have 2-200 shareholders. But if more people are to be involved, it should become a public limited c
Public Limited Company
Before a private limited company goes for an IPO (Initial public offering), it has to present its track record. Another requirement of a public limited company is statutory audit; the accounts have to be presented to the government every year.
One peculiarity of such firms is that the promoters can only choose the name of the company from a list suggested by the government authority. However, they can decide the brand name.
The cost of registering a public limited company is around Rs 50,000. Another Rs 50,000 has to be spent to meet the statutory obligations. All such procedures attract the trust of the government and the public for this form of business. Moreover, a company can provide a protective environment to the clients, staff as well as management.
The main drawback of a public limited company is that winding up the firm is difficult as well as expensive. For a small business, transformation from being a private limited company to a public entity is painful. When the company is big, it has to depend on a company secretary, auditor and accounting firms. Employees too would have to be appointed. Another factor that is crucial is that support of the community has to be ensured while running such a business.
Considering these aspects, much care has to be employed before launching a public limited company. Study at least 100 businesses in detail and identify the single most suitable one for you. For this, conduct research and speak to experts. The effort would be worth it as public limited companies have the potential to grow to national and even international levels. So, inspiring children to be entrepreneurs who launch their own companies is a good idea.
Global trade does not mean just buying an item from abroad and selling it in India. Making a purchase in Mexico and selling it in Turkey is also international business. Such business-to-business deals can be carried out by public limited companies. In fact, such activities contribute to the national cause. They support the people of the country in many ways too.