Introduction
Just like every single thing in this universe has varieties and types, similarly business has different types of structures for it. To diversify and open up options for people, different variety of business structures are formed. To make you aware of some of the known business structures, let me point some of them. Starting with sole proprietorship, then the Partnership, Limited Liability Partnership (LLP), Company etc.
Every business structure has its own significance. Like, sole proprietorship is that types of business structure where a sole person want to start with a business. If we talk about Partnership then, partnership business structure is where two or more persons come together to start over with a business with a simple motive to earn profits. Looking at the Limited Liability Partnership, here also two or more people come together with the same motive to earn and run the business. However, here being a company the owners of the company shall not be held liable for any of the loss incurred. You must be thinking that what is the difference between partnership and limited liability partnership. Well, to know the difference between the two, continue reading and get more clarity by yourself.
What is a Business Structure?
Business Structures describes the legal structure of a company that has a crucial influence on the daily operations of a business. And that is the reason why it plays a crucial role to decide before starting the business as to which business structure would be best.
Choosing the appropriate business structure is not an easy task as the business’s future depends on it. So, before selecting a business structure, consult a professional and take advice as to which business structure can give the best of profits depending on the business.
Forms of Business Structure
- Sole Proprietorship
2.Partnership
3. Limited Liability Partnership
4. Private Limited Company
5. Public Limited Company
These five are the basic yet popular forms of business structures. However, there are more types of business structure popular in India. These are:-
- One Person Company
- Section 8 Company
- Joint Venture Company
- Non-Government Organization
Let us now discuss about the forms of business structure popular in India in detail.
Sole Proprietorship
It is a type of business structure than is run by a sole person. It also means that whether the company earns profits in crores or goes in loss and lost all assets, the sole person shall only be held liable. With the sole person having the complete control over the business, he or she shall be responsible for taking all the decisions for the business. Sole Proprietorship is a business structure where the sole person and his or her business is not considered as separate entities. So, the company and the owner of the business being considered one, is liable for every ongoing in the business. It is a structure of business for which no compulsory registration is required.
Hence, it is the simplest form of business organization starting from the beginning of the process that doesn’t require any registration process and also when closing down the business, no legal processing is asked.
If you are a person who thinks to start a business and is capable enough to run a business individually then, go for sole proprietorship form of business structure. Here are some of the additional benefits to sole proprietorship form of business.
- Cost effective form of business
- Flexible while decision making for the business
- Independency being the sole person to run and manage the business
Partnership
Now coming to partnership form of business, here, two or more individuals decides to work together and earn profits. For starting with a partnership firm, the basic requirement is to have a Partnership Deed. It is a deed specifying the invested interest of each partner and profits sharing ratios along with other terms of business functioning and operations.
Partnership is a business structure where not one, but both the persons are held equally liable for all the liability arising in the business.
So, if you have a trust worthy friend or a known person whom you have full faith then, you can start a partnership firm with him or her. But remember it is bit risky !
Here are some of the certain benefits that are being mentioned below:-
- Ease in raising funds
- Responsibilities, Profits and losses too are shared equally
- Mutual trust allows smooth running and high profits also
Limited Liability Partnership (LLP)
LLP being a limited partnership is also known to be Limited Liability Company (LLP). This business structure is incorporated under the Limited Liability Partnership Act. The main difference between the partnership firm and limited liability partnership is that of liability. In Partnership firms, both the partner are equally held liable whereas in limited liability partnership, partners are not burdened with unlimited liabilities incurred in the business.
So, the liability of the partners stays limited to investments made by them. And so, the partners and the limited liability partnership are considered separate legal entities. Also, no partner would be liable for the doing of the other partner. Thus, all the partners of the limited liability partnership are safe and shielded from joint liabilities upon commission of another partner’s misconduct.
The benefits of Limited Liability Partnership (LLP) are as follows:-
- No Minimum Capital Requirement to start with a LLP/LLC
- Suitability as it includes easy processing and also lesser of the legal formalities
- No limitation on the number of business owners
- Less registration cost required
- Less Legal Compliance
Private Limited Company
Private Limited Company is known to be the best business structure and mostly preferred by the people to start business. As per the Companies Act, Section 2 (68) of the Companies Act, “Private Company means a company having a minimum paid up capital as may be prescribed and which by its articles:-
- restricts the right to transfer its shares;
- except in case of One Person Company limits the number of its member to two hundred;
- prohibits any invitation to the public to subscribe for any securities of the company.
Here are the interesting benefits enjoyed by many startups due to which they chose this types of company:-
- Separate Legal Entity
- Borrowing Capacity
- Easy Exit
- Ability to sue and can be sued
- Perpetual Succession
- Hold Property in its own name
- Dual relationship
Public Limited Company
A Public Limited Company is a types of business structure that is formed by a minimum of 7 members and having minimum paid up capital. As compared to Private Limited Company, public limited company has more of the legal compliances starting from the incorporation to the closing down of the business.
This type of business structure may get its shares listed on the stock market. To be true, this company attracts a heavy amount form the initial stage itself. However, public limited company also enjoy certain benefits, namely: –
- Limited Liability
- Continuous Existence
- Huge Capital Requirement
One Person Company
It is a new concept that has come to allow entrepreneurs also to start with their own company. As per Section 2 (62) of Companies Act, “One Person Company: means a company that has only one person as a member.
It requires to have a nominee appointed to start with the one-person company. Under this form of business structure, all the share can be owner by one person. This new types of business structure was launched in order to create more employment opportunities.
Learn some of the benefits of One Person Company:-
- Entitled to avail payment of interest on any delay in payment
- Sole Owner
- Additional Opportunities
Section 8 Company
It is a form of business structure that is also known as a Non-Profit Company that is incorporated under the Companies Act. It is a limited company that is incorporated with a purpose of promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment etc.
Section 8 Company can enjoy all the benefits enjoyed by a limited Company and also are subject to all the obligations imposed on limited companies.
For starting a section 8 company, the company must have any of the objective that are mentioned below, namely:-
The objective must be confirmed to the satisfaction of the Central Government
- When the company intends to promote science, commerce, education, arts, sports, research, religion, social welfare, protection to environment etc.
- When the company holds an intention to invest all the profits or any other income generated after incorporation in the promotion of such objects only.
- When the company does not intend to pay any dividend to its members.
Where there any arises any kind of failure in meeting the norms that are basically the objectives, formulated by the Central Government then, it may lead to the closure of the company on the orders of the Central Government.
Here are some of the benefits to incorporating a section 8 company:-
- Avail tax benefits and exemptions
- Zero Stamp Duty
- Minimal Share Capital required
- Exempt to comply with the affixing some term before or after the company name like in case of Private Limited Company, company is required to affix the term “Private Limited Company” in the ending of the company. For Example: – Divyansh Exim Private Limited.
- Enjoy the benefit of separate legal entity
- Improved Credibility
Joint Venture Company
The short term known for “Joint Venture Company” is “JV” which means a joint agreement where parties have joint control on the arrangement made by the company. Here two or more parties with mutual consent and agreement come together to achieve a commercial objective. The Joint Venture Company under it has more kinds namely: –
- Equity Based; or
- Contractual JV
JV is termed to be a very flexible concept as it may be a long term basis or constitutes of an entirely new business, or an existing business that is expected to significantly benefit from the introduction of new participants. Under Joint Venture Company, alliance can be a formal contractual agreement or an informal understanding between the parties.
This form of business structure is mostly preferred by insurance, asset management, oil and gas, and infrastructure sectors and following the liberalization of the defence sector etc.
The benefits to Joint Venture Company are as follows:
- Access to the established distribution and marketing channels of the Indian partner;
- Access to the available financial resources of the Indian partners; and
- Access to the established contacts of the Indian partners which will eventually help and ease the process of setting up operations in India.
Non-Government Organization
Non-Government Organization in short is termed as “NGO”. It is form of business structure that aims to benefit the society at large especially for the unprivileged ones. NGOs being a different kind of business requires different requirements that you have to follow.
Here the functions played by NGOs:-
- Eradication of Poverty
- Promote Education
- Protection of Environment
- Environment Conservation
- Wildlife Conservation
- Awareness about human rights
- Providing Health and Nutrition
- Providing Food and Shelter
- Old Ages Homes
- Adoption homes
- Homes for women
- Sanitation and hygiene
- Animal Rights
- Disease Control and Others
- Women Empowerment
It is the only one kind of business structure that does not work for profit making. As its only motive is to do social welfare for the society and target the unprivileged people. The NGO are however need to comply with some rules and regulation as are framed by the Government of India.
Some of the benefits for incorporating NGOs are as follows:-
- Open to avail government as well as private funding
- Tax benefits
- Serves long service life
- No minimum capital requirements
- Status of autonomous legal identity
- National and Cross border collaborations
Last Words
The article provides a brief overview of what is a business structure, different legal business structures as well as some of the benefits to the types of business structures. Every form of business structure has its own merits and demerits. All the benefits are provided to make it clear to our readers to begin the business.
However, it is very important to consult a professional and clear all the doubts before hand so that no issue arises after you have begun with. Take advice, ask for the best suitable type of business structure and check out the government fees before itself to be very clear with all the compliances also.
To get any kind of consultation, you can take help of EAdvisors team of experts. We help, consult, guide all our clients as to what is best for them. So, feel free to contact us and avail expert advice. We have a 24-7 Support Service so, give us a call anytime and get the best of services from our team.
