Privately-held business entity is held by its private stakeholders where liability upon its shareholders is limited to the extend up to the number of shares held by them.The governing body for such a company is the Ministry of Corporate Affairs (MCA).
FEATURES:-
Membership:
Minimum of two shareholders.
Maximum cap on the number of members fixed at 200.
Along with two directors to run the company
Limited liability structure:
The liability of each member or shareholder is limited.
Separate legal entity:
Distinctive legal entity, which keeps it separated from that of owners.
Minimum paid-up capital:
Minimum paid-up capital of Rs.1 lakh.
It could go higher, as prescribed by MCA from time to time
Perpetual succession:
even if all the members die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law.
The life of the company will be perpetual, not affected by the lives of its shareholders or members unless dissolved by way of resolution.
Winding Up:
Upon dissolution of the company, its not limited to mere closure of the office.
A proper legal process of winding up is followed is order to close the company, making it a tedious task.
REQUIREMENTS:
Members and Directors is a statutory requirement as mandated by the Companies Act, 2013.The directors should meet the following conditions:
Each of the directors should have a DIN i.e. Director Identification Number,given by the Ministry of Corporate Affairs.
One of the directors must be a resident of India, which means he/she should have stayed in India for not less than 182 days in the previous calendar year.
Name of the company is required to cover three aspects:
Main name
Activity to be carried out
Mention of 'Private Limited Company' at the end.
Registered office address where the company's main affairs are being conducted and where all the documents are placed.
Obtaining other documents for electronic submission of, every company must obtain:
Digital signature certificate that is used to verify the authenticity of the documents.
Employing professionals (secretary, chartered accountant, cost accountant etc.) for varied activities, certifications by these professionals.
DOCUMENTS REQUIRED:
ID proof: PAN card and passport of Indian and foreign directors, respectively
Address proofs: Ration card or Aadhar card or driver's license or voter ID
Residence proofs: Bank statement or electricity bill of the premise
Notarized rental agreement
NOC from the property owner
A copy of sale deed or property deed (for an owned property)
PROCESS OF REGISTRATION:
Apply for DSC (Digital Signature Certificate)
Apply for the DIN (Director Identification Number)
Apply for the name availability
File the EMoa and EAOA to register the private limited company
Apply for the PAN and TAN of the company
Certificate of incorporation will be issued by RoC with PAN and TAN
Open a current bank account on the company
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Start-Up as LLP – Limited Liability Partnership
Limited Liability Partnership is an amalgamation of a company and a partnership which incorporates the favourable features of both. It integrates the organizational and operational flexibility of a Partnership having benefits with the protection of limited liability but having a separate legal identity of as that of a Company. In India, the Limited Liability Partnership Act, 2008 was notified on 31stof March, 2009.It is governed under the Ministry of Corporate Affairs (MCA).
FEATURES:
Separate Legal Entity:
Unlike partnership firm, LLP has a separate Legal Entity and existence from the owner.
Have rights to acquire assets or incur liability. It can sue or be sued.
Limited Liability:
Unlike partnership firm, LLP as the name suggests has limited liability.
The personal assets of the owner can not be ceased in case of paying of the incurred debts.
Amalgamation of Benefits:
LLP has mixture of the benefits of a company and a Partnership firm.
Perpetual Succession:
LLP continues to exist even if the owner dies, become insolvent or suffer illness.
LLP cannot wound up, until all the annual returns are filed in order to avoid any invitation to penalties.
Less Risk Involved:
In LLP, there is lesser chance of the firm suffering upon the wrong doings of some partner. One may not suffer, due to another.
Lesser Compliances to be adhered:
It take less amount of requirements to open an LLP than a Private Limited Company.
However, much more requirements needed than a Partnership Firm.
ANNUAL RETURN FILING:
An LLP essentially files two types of MCA annual
Form 8
Form 8 must be filed within 30 days from the end of 6 months of the financial year along with the prescribed fee. It must be digitally signed by two designated partners and must be certified by a chartered accountant/company secretary/cost accountant. Form 8 has two parts:
Part A – Statement of Solvency
Part B – Statement of Accounts, Statement of Income Expenditure
Penalty applicable for not filing form is Rs.100, until it is compiled with.
Form 11
Form 11 contains details of the number of partners, total number of partners, total contribution received by all partners, details of body corporate as partners and summary of partners. All LLPs should file this form within 60 days from the closure of the financial year with the prescribed fee. The due date for filing LLP Form 11 is 30th of May, each year.
STEPS FOR REGISTRATION PROCESS:
Obtain Digital Signature Certificate for all the partners constituting Limited Liability Partnership.
Apply for DIN Number on MCA Portal.
Apply for Name Approval on MCA Portal.
Register the LLP after the approval of Name.
The partners enter into LLP Agreement by filling of Form 3 online on MCA Portal.
Submit all the required documents to the Registrar.
Get the LLP Incorporation Certificate.
Apply for Company PAN and TAN with the NDSL.
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Sole Proprietor
A sole proprietorship firm is one which has only one individual owner and all of its affairs are managed by the owner, along with owning assets and the liabilities stated under the account of the firm.
It is always presumed that for any start-up, which is in testing phase, one should always opt for sole proprietorship type of entity for the business, in order to understand the nuisances of the idea, without incurring of heavy losses. However, like every coin has two sides, this type of firm too come up with its own pros and cons which are discussed thoroughly as follows:-
Merits
De-Merits
Easy and Inexpensive to Establish:
Simplest and least expensive business structure to be initiated. Costs are minimal, with legal costs being limited to obtaining the necessary licenses or permits.
Idealoption for the business start-ups, self-employed contractors, and part-time and home-based businesses.
Unlimited Personal Liability:
No legal separation between the owner and the business.
Could be held personally liable for the debts and obligations of the business.
Owner's personal assets could be seized, in order to pay for the incurred debts.
Complete Control:
Sole owner of the business and have complete control over all decisions.
Lack of Legitimacy:
May view them as not having the same level of legitimacy and professionalism as an incorporated business may carry.
May believe that hiring a sole proprietor increases the risk of the tax authorities treating the person as an employee rather than an independent contractor.
Easy TaxPreparation:
Simpler to operate upon business taxes, because all the income generated from the business is reported on the personal tax form.
Tax rates tends to be the lowerfor such business structure which may even offer a pass-through tax advantage.
Tedious To Manage Funds/Resources:
Often faces challenges to raise money because they cannot sell stock in the business, limiting investing opportunities.
Banks arehesitant to lend to a sole proprietorship because of a perceived additional risk when it comes to repayment if the business fails.
Tax Deductions:
Number of deductions available for a start-up under sole proprietorship.
Expenses related to the cost of doing business are fully deductible from income tax.
Difficult to be Sold:
Can be more difficult to sell because the business is completely tied to the owner.
No distinction between the assets of the owner and the assets of the business
Proper valuation of the business can be difficult to achieve.
Difficult to be Sold:
Can be more difficult to sell because the business is completely tied to the owner.
No distinction between the assets of the owner and the assets of the business
Proper valuation of the business can be difficult to achieve.
Survival of Business:
Death or long term illness of the owner, or even a sale can render the business worthless as customer's loyalty often resides with the original owner of the business.
Takes time to establish the reputation in the market, which in this case, lives and dies with the owner of the business.
Miscellaneous:
Low annual maintenance costs
All pervasive work nature i.e. from anywhere at anytime
Easy to get a grip on
Free from any dependence
Option to turn it up as any other kind of business
Miscellaneous:
Whole business operations are handled by a single mind. One mind can not be practically trained in all the required subjects which are essential to run a fruitful business.
Business may suffer due to the lack of skills, knowledge and poor judgements or decisions made by the owner.
Therefore, depending upon the idea, funds and available resources, one can go for sole proprietorship firm, by analysing the pros and cons in depth for the same. It would help the person to prosper the idea more explicably and then turn the chances of being a mere employed individual to a self employed person, from being the job seeker to job maker. We, at Tax Avatar will provide you with such initiatives. We may guide and support your breakthrough idea to do wonders the market and you will be able to fulfil your dream of being own boss, in a subtle and calculated approach. Provide us to help with such enthusiasm in your own idea, so that it's a sure shot success for you to be rewarded with.
Understanding the worth of opening such small start-ups, the honourable Government undertook the initiative to launch Pradhan Mantri Mudra Yojana for Start-ups, where MUDRA stands for Micro Units Development & Refinance Agency.It is a financial institution setup to provide financial assistance to small businesses to borrow loans from banks up to ₹1,000,000, without any collateral, through the channel of Banks, NBFC etc.
Start-up As Partnership Firm
Partnership is an association of two or more individuals who agree to share the profits of a lawful business which is managed and carried on either by all or by any, or some of them acting for all. Persons from similar background or persons of different ability and skills, may join together to carry on a business. Each member of such a group is individually known as 'partner' and collectively the members are known as a 'partnership firm'. These firms are governed by the Indian Partnership Act, 1932.
Features of Partnership Firm:-
Formation:
Minimum of two persons are required to start a partnership business.
Maximum membership limit is 10 in case of banking business and 20 in case of all other types of business.
ContractualRelationship:
Relation between the partners is created by contract.
Partners enter into partnership through an agreement which may be verbal, written or implied.
Written agreementis known as a Partnership Deed.
Competence Of Partners:
Any individual who is a minor i.e. below 18 Years if age or lunatic or insolvent is incompetent to be a partner.
Minor can be admitted to the benefits of partnership i.e. he can have a share in the profits only.
Sharing of Profits/Losses:
Partners can share profit in any ratio as agreed.
In the absence of such agreement, they share it equally.
Legal Status:
No separate legal identity.
Relationship between partners and the partnership firm is non-distinguishable.
Registration:
Registration of partnership is not mandatory.
If registered, any partner can file a case against other partners, or a firm can file a suit against outsiders in case of disputes, claims, disagreements, etc.
Unlimited Liability:
Partners are liable jointly and severally for the debts and obligations of the firm. Personal assets could be used to pay off incurred debts.
The liability of a minor is, however, limited to the extent of his share in the profits, in case of dissolution of a firm.
Transfer of Interest:
No partner can sell or transfer his interest in the firm to anyone without the consent of other partners.
Principal-Agent Relationship:
Business in a partnership firm may be carried on by all the partners or any one of them acting for all.
Every partner is an agent when he is acting on behalf of others and he is a principal when others act on his behalf.
Dissolution:
Includes any change in the existing agreement among the partners due to a change in the number of partners.
Types of Partners:
Active/Working Partner is one who contributes capital to the business and takes active part in its management.
Sleeping/Dormant/Financing Partner is one who contributes only capital to the business, but does not takes part in its management.
Nominal Partner is one who neither contribute capital nor takes an active part in the management. His contribution in a partnership is limited to allowing the other partners to make use of his name.
Partner by Estoppel/Holding Out is not a partner of the firm but by his words and conduct he leads the outsiders to believe that he is also a partner of the firm.
Minor as Partner is one whose liability extent of his capital contribution. Such a partner can be allowed to share the benefits of the firm only.
Sub-Partner has no direct contact with the firm. He is only next to a partner.
Partner in Profit becomes a partner whenever the firm earns profit but holds unlimited liability.
Documents Required For Registration of the Firm:
Prescribed registration form for incorporation of the firm
Identity proof/Address proof of Partners
Certifiedcopy of the Partnership Deed
Proof of the principal place of business
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Comparative Study
S.No.
Parameters
Sole Proprietorship
Partnership Firm
Private Limited Company
Limited Liability Partnership (LLP)
1.
Registration
No formal registration required
Optional to register or not. If registered, Partnership is governed under the Partnership Act, 1932
Will be registered with the Ministry of Corporate Affairs under the Companies Act, 2013
Will be registered with the Ministry of Corporate Affairs under the Limited Liability Partnership Act, 2008
2.
Legal Entity
No separate legal existence
No separate legal existence
Separate legal existence
Separate legal existence
3.
Liability
Unlimited
Unlimited
Limited to the extent of the contribution of the shareholder
Limited to the extent of the contribution of the owner
4.
No. of Members
Single Person
Min- 2 Max- 20
Min- 2 Max- 200 shareholders
Min- 2Max- No Limit
5.
Foreign Ownership
Not Allowed
Not Allowed
Foreigners are allowed to invest under the Automatic Approval route in most sectors.
Allowed to invest only with prior approval of Reserve Bank of India and Foreign Investment Promotion Board (FIPB)
6.
Transferability of Ownership
Not Transferable
Not Transferable
Can be transferred by way of share transfer.
Can be transferred
7.
Existence / Survival
Dependent on the Proprietor
Dependent on the Partners
Independent
Independent
8.
Taxation
Taxed as individual, based on the total income of the Proprietor
Profits are taxed at 30% plus surcharge and cess as applicable
Profits are taxed at 30% plus surcharge and cess as applicable
Profits are taxed at 30% plus surcharge and cess as applicable
9.
Annual Filings and Statutory Meetings
Not Required
Not Required
Board and General Meetings must be conducted periodically
