Starting up? Different types of business options available

India has “woken up” too late! These words are of our President Pranab Mukherjee while interacting with a delegation of CEOs from the Silicon Valley in New Delhi.

“Indian youth are second to none in entrepreneurship. India serves as the fastest growing start-up base worldwide and stands third with 4,200 start-ups, next only to US and UK. The government has initiated the ‘Start-up India, Stand-up India’ campaign to incentivise entrepreneurial ventures. Heads of institutes of higher learning must work towards creating an innovation and research network that will produce entrepreneurs and nurture innovations,” Mukherjee said.

A lot of youngsters today are keen on starting up but don’t really how to start and what is the best option for them? Sandeep Lodha, a seasoned CA who has wide experience working with startups points out the different types of business options  individuals have to start up today.

Proprietorship: 

As the name suggests, it’s a single person operated business. A simple trade license is sufficient to start a proprietorship entity and open bank account with your business name.

Pros: Easy to form, control of decision making and simpler taxes.

Cons: Unlimited liability, difficulty raising capital and financing and low brand value.

Partnership 

Minimum 2 and maximum 20 persons can join hand and form a partnership firm. Its registration is not compulsory but suggestible. A partnership deed has to be prepared and signed by all the partners.

Pros: Easy to form, better management and sharing of risks, less compliance and easy to manage.

Cons: Unlimited liability, difficulty raising capital and financing.

Limited Liability Partnership (LLP) 

LLP is a more sophisticated version of a partnership firm. Minimum 2 and there is no maximum limit of partners. LLP is governed by the ministry of corporate affairs. As compared to proprietorship and partnership firm, incorporation of LLP requires for documentation and takes more time.

Pros: Easy to form, better brand value compared to a partnership firm, relatively lesser compliances compared to a PLC and partners’ liabilities are limited.

Cons: Difficulty in raising capital and financing.

Private Limited Company (PLC)

Private limited company is the most preferred form of Entity by entrepreneurs who are looking to raise angel funding and at the same time want their business have the brand. PLC requires certain annual compliances to be adhered to as well as compulsory audit by a chartered accountant. Minimum 2 and maximum 200 shareholders can be there in a PLC

Pros: Limited liability, separate legal identity, ease in raising capital and financing and a better brand value.

Cons: Adherence of more compliance and legal regulations and relatively complex to incorporate a PLC.

One Person Company (OPC)

As the name suggests, OPC is an equivalent of PLC but maximum of 2 persons (viz. Director and Nominee Director). This form of entity is preferable for entrepreneur with limited business appetite and at the same to have the brand of PLC associated.

Pros: Limited liability and better brand value compared to a sole proprietorship, enjoys the status of Separate legal entity and lower compliance burden compared to PLC.

Cons: Compared to sole proprietorship adherence to higher compliance and legal regulations, higher tax outgo and not easy to draw money.

About Sandeep Lodha:

Sandeep is a Chartered Accountant (equivalent to CPA) and has also done PGDBA (finance) from SCDL, Pune. Having qualified as a Chartered Accountant in the year 2006, he has worked for over 5 years in MNCs like Deloitte Haskins & Sells, Dr. Reddy’s Laboratories and Wells Fargo. In the year 2011, he left Wells Fargo to pursue his dream to have his own venture and established S.P. Lodha & Associates “SPL”, a registered chartered accountant firm. He provides his professional expertise to lot of start-ups right from business incorporation, accounting and compliance management.

Sandeep can be reached at sandeep@splodha.com

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