In the current economic environment, there are a number of possible types of companies in India, which, on the one hand, allows you to realize the maximum opportunities for doing business on various conditions, and on the other hand, the types of organization of the enterprise, or rather their abundance, significantly complicates the initial registration of new business and confuses new one’s future entrepreneurs.
In addition, the legal subtleties possessed by various types of companies in India can be very different from each other and require the availability of appropriate education or work experience. So, a consultant lawyer working exclusively with LLC issues will not always be able to give relevant and appropriate advice to an individual entrepreneur, and, of course, vice versa.
Forms of companies differ both in the number and type of ownership, and in the level of responsibility, the maximum possible size of the turnover of funds and staff, and, of course, in taxation mechanisms. All this, in the end, requires careful selection of a suitable form of organization, and this choice should be made in advance, before registering a business – some forms allow a subsequent change in the future, and some do not provide for it.
About business entities
Before talking about the main forms, it should be noted that one of the main divisions of the mechanisms of responsibility and, in general, subjects-participants of civil and business law is the distinction between individuals and legal entities.
A common misconception is that many people believe that all legal entities are business entities by default – it is fundamentally wrong. Just as individuals may or may not engage in business, legal entities do not necessarily exist for profit.
A good example of this situation is civic organizations or government agencies. They are officially registered legal entities, they can send correspondence on their own behalf and participate in various types of social relationships, while their activities are by no means aimed at making any profit. In addition, legal entities have their own separate TIN, unlike individual entrepreneurs, which are used by all citizens.
However, this separation is extremely important for the direct implementation of any business. The only possible form of registration of an individual in the form of a direct business entity is the form of an individual entrepreneur.
It has strict regulations and a large number of restrictions, but, at the same time, it allows you to use a number of preferences, from the use of a simplified tax system to the accrual of funds directly to a retirement account without the need for a payroll.
What types of companies are in India
The types of companies on the territory of the Indian Federation are precisely indicated in the legislation and cannot go beyond it. So, in addition to the form of an individual entrepreneur, as an individual, the following types of companies that are legal entities may exist:
- Limited liability companies
- Public (open) joint stock companies
- Non-public (closed) joint stock companies
- Unitary companies (state-owned commercial institutions)
- Production cooperatives
- Partnerships on faith
- Full partnerships
Each organizational form has its own advantages and disadvantages, while in modern conditions of Indian business, LLC, OJSC, ZAO, and less commonly, cooperatives, are most often used for doing business.
The institution of partnerships among legal entities conducting entrepreneurial activity is extremely rare due to the complexity of registration and too high risks for participants.
The conditions assumed by such an organizational form are much less convenient for carrying out entrepreneurial activity, and they have practically no positive aspects that are advantageous in comparison with other forms.
What organizational form to choose for doing business
In general, the situation in the Indian environment has traditionally been such that novice businessmen choose either the sole proprietorship format as a sole proprietorship when conducting a single activity, or LLC if the business is initially based on partnerships.
However, due to some features, LLCs are also often registered by one person who does not want to bear too many risks in connection with their activities.
Joint-stock companies require a special structure and are not suitable for the initial stage of creating their own business, being quite complex and complex organizations.
Production cooperatives, on the other hand, are based mainly on the basis of old companies that have become collective property, while farms are based on agricultural activities and the unification of farmers directly with each other.
Therefore, the most pressing issue when starting a new business is a direct choice between an individual entrepreneur and an LLC. We will try to describe as much as possible all the advantages, disadvantages and features of each of these two main organizational forms of business.
To whom is IP suitable?
Earlier in the Indian Federation, individual entrepreneurs had various names – a private entrepreneur, or an entrepreneur without a legal entity. Now there is a tendency to simplify this system in order to attract as many people as possible to the small business segment.
In addition, the liberalization of state policy towards individual entrepreneurs encourages many people to stop receiving “gray” tax-free incomes.
In general, the main advantage of working as an individual entrepreneur can be called the possibility of using a simplified taxation system in some cases, as well as the ease of registration with state authorities – a procedure under successful circumstances can take only one day.
In addition, all private entrepreneurs are exempt from tax for using property in business, in many cases they can do without printing, can easily use all their own revenue, do not require the appointment of directors, minutes of meetings, they have a simplified version of reporting and can use their personal funds and bank accounts directly in their activities, without transferring them to a separate company account.
Nevertheless, this type of activity has a number of drawbacks – all individual entrepreneurs are liable with their property for unfulfilled obligations, cannot receive certain licenses, have the need for double tax accounting, cannot delegate business management to a third party in the form of a director, and do not have social protection from the state in case of temporary disability – even complete disability due to an accident does not exempt from paying contributions to the pension fund.
In general, this type of business is suitable for those who only want to try themselves in entrepreneurial activity and do not want to spend too much time on the development of legislation and relevant bureaucratic procedures related to the registration of LLCs and the maintenance of internal documentation. Also, it is worth noting that individual entrepreneurship does not allow the participation of several people in the creation of a business.
Advantages and Cons of LLC
Limited liability companies are now the most popular legal form used for doing business. This is ensured by a number of factors. The founders of an LLC can be either one individual or several, in addition, other legal entities can be participants or founders.
Attractive is the fact that the responsibility for all transactions is carried out by the participants in the digging process only within the scope of the direct common property of the company and the authorized capital, while LLC participants do not have to answer with their personal property.
Also, it should be noted that the LLC allows you to engage in most types of commercial activities, however, the registration of this form may take a long time. Moreover, all the mechanisms used to formalize the activity are also distinguished by their simplicity and clarity for the average layman.