How to select a business model?

What are the Business Models in India

There are four types of business models in India, they are:

  1. Sole Proprietorship
  2. Partnership Firm
  3. Limited Liability Partnership (LLP)
  4. Company

Sole Proprietorship:

The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name, such as ABC Enterprises. The fictitious name is simply a trade name-it does not create a legal entity separate from the sole proprietor owner. The words LLC, Inc, PJSC, GMBC, PTE LTD, PVT LTD & LTD are not allowed to be used at the end of the Sole Proprietorship firm's name. Certain words are prohibited in the by law, one can refer Prevention of Names and Emblems Act.

Sole Proprietorship Firm registraton is not mandatory, with out registration also, you can run the business but to open a current banking account, the banker may insist you to get it registered and hence registration is essential. There is no particular office where you can register your busines, you can register it under GST as trader or supplier of services, Shops & Commercial Establishments as commercial establishment and MSME as MSME entitiy. No separate PAN is allotted as the individual PAN is used for Income Tax purpose.

So, if you are a small enterprenuer and do not have expansion plan, you better register your business as Sole Proprietorship.

Partnership Firm:

A partnership firm is an organization which is formed with two or more persons to run a business with a view to earn profit. Each member of such a group is known as partner and collectively known as partnership firm. These firms are governed by the Indian Partnership Act, 1932. It is a Central Act but administered by State. In a unique feature, all partners have unlimited liability in the business. The partners are all individually and jointly liable for the firm and the payment of all debts. This means that even personal assets of a partner can be liquidated to meet the debts of the firm. It may be for temporary purpose or permanent. A partnership deed can be entered as such. The words LLC, Inc, PJSC, GMBC, PTE LTD, PVT LTD & LTD are not allowed to be used at the end of the firm's name. Certain words are prohibited in the firm name Ex: India, one can refer Prevention of Names and Emblems Act.

Firm registraton is not mandatory, with out registration also, we can apply pan card and run the business. It may be registered with the District Registrar office so as to show their customers that their business is registered.

It is preferable for a small business owners where more capital is not required.

Limited Liability Partnership (LLP):

The Limited Liability Partnership (LLP) is one of the business concepts in India, introduced by the Ministry of Corporate Affairs (MCA), Government of India during the year 2008. Unlike a partnership firm, a limited liability partnership have limited liability in which some or all partners will have the limited liability. It exhibits the elements of both partnership and company. In LLP, one partner is not responsible or liable for another partner's negligence or misconduct. The LLC, Inc, PJSC, GMBC companies are western formats and are not available in India but if they want to use their company name in India, they can register in India as Foreign Company.

The limited liability partnership is a legal entity and an alternative to corporate business form. It is liable for to the extent of it's total assets whereas the partners liability is limited to the extent of their capital contribution. We can say LLP is an hybrid between a company and a partnership. LLP Registration is regulated by the Central Registration Center (CRC), Manesar, Delhi on behalf of each state jurisdictional Registrar of LLPs, Ministry of Corporate Affairs, Government of India. The governing law for the LLP is Limited Liability Partnership Act, 2008. To register a Limited Liability Partnerhsip, there should be two designated partners.

LLP is preferable for professionals such as Doctors, Advocates, Chartered Accountants, Company Secretaries, Engineers etc.,.

Company:

The Private Limited Company is a well-known business concept in India. There are more than 120,000 companies are being registered on yearly basis. Due to its limited liability concept, the private limited companies are enjoying the benefits available under Companies Act, 2013. The LLC, Inc, PJSC, GMBC companies are western formats and are not available in India but if they want to use their company name in India, they can register in India as Foreign Company.

Company Registration is regulated by the Central Registration Center (CRC), Manesar, Delhi on behalf of each state jurisdictional Registrar of Companies, Ministry of Corporate Affairs, Government of India. The governing law for the companies is Companies Act, 2013. The Government of India had announced on 26th January, 2018 that there is zero incorporation fee for the Companies registered with an Authorized Share Capital up to of Rs. 1,000,000/- (Rupees Ten Lakhs). The remaining fee such as Name Availability, Stamp Duty, Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) is applicable as usual.

To register a Private Limited Company, there should be two directors and two shareholders. The shareholder may be a body corporate but the director must be an individual. One of the directors must be an Indian resident.

Company form of business is preferable for enterprenuers who have long term plan. CompaniesHouse is an MCA Authorized Company Registered Agent in India. The object of the CompaniesHouse is to minimize the cost in registering business entities throughout India.

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