What you need to know before you start your business

May 30, 2016 4:52 pm | Published by | 1 Comment

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Every unique business idea has the capability of reaching great heights – to being a multi-billion business or a unique coveted niche and everything in between.

Sounds like a dream come true. All you need is a business idea, a team, passion, determination and strength to do so. Is this sufficient? Is this the fact? Can business be made big only with these few things? Not true. You, along with these, need a very important aspect which gives an identity and approach to your business idea and that is nothing but “REPRESENTATION”.

Representation here refers to presenting your business, giving it a form, giving it a name you desire, giving it some identity, way of approach, building trusts among the perspective clients you approach, etc etc etc. How does all this happen? Not only by your passion or team or so, it is also by choosing the apt form of business from amongst the available forms. But which is the right form of business for my idea. India has too many options to choose from like Private Limited, LLP, Proprietorship and Partnership. So it is Private Limited, no LLP, no I want to rule it alone so Proprietorship or may be Partnership – but that can go wrong at any point. It is a difficult choice.

It definitely makes a huge difference when you call yourselves a Director of a Company or a Proprietor or a Partner of Partnership, the designation you have also makes a difference to your identity and build loyalty factor between you and your client. It is especially crucial when your business shifts gears on its growth plan. Whether it is increased profits or looking at funding. What format of company formation is suitable to what category or industry and how does it impact your taxation and profits. It is not advisable to keep changing your company format at every stage of growth unless it is in an upward and forward direction. Not only does it seed distrust amongst the employees and customers but decreases the growth potential of the company.

All of the above mentioned technical jargons have logic behind them and there are various advantages and disadvantages attached to it. Every business idea definitely fits rightly in any one of the above mentioned forms and every person being it the one running the business or the person investing funds for business, has a different identity and different roles and responsibilities. But what, how and why is a question always in the minds of every business man/women.

As India is rightly said to be the business hub, a country flexible enough and smooth enough for start-ups with as many benefits as possible provided by our Government, we should all definitely stream ourselves to become the great business tycoons and the same shall happen if along with the other generic requirements a right decision for the form of business is taken which is compliant from the very start.

Have an idea bring it on, no rules, laws or confusions shall stop you from becoming big. Decide on a company formation only after you have consulted a company secretary who will weigh the pros and cons and depending upon your vision for your company will advise you accordingly and get it done. So here is a quick snapshot of what these terms mean.

Proprietorship:

  • Involves only one person, the whole and sole owner of the business.
  • Well suited usually for every industry but it all depends upon the business structure. But better suggested for industries which do not involve heavy investments.
  • One of the pros is less compliances so ease of business and one of the cons is very unorganized way of doing business.

Partnership:

  • Involves two or more than two people, the partners of the business.
  • Well suited usually for every industry but it all depends upon the business structure again. But better suggested for business structure which is simple and smooth and does not involve major litigation matters.
  • One of the pros is involvement of 2 or more people which in turn brings in better ideas and resources for doing business and one of the cons liability of every partner is unlimited and their personal assets can be held for making good of any liability of the partners.

LLP: It stands for “Limited Liability Partnership” which is a very new and growing concept in India for doing business.

  • Involves two or more than two people, the designated partners and partners of the business.
  • Well suited usually for every industry but it all depends upon the business structure again. But better suggested for business structure that wants to bifurcate between people running business and people bringing in funds and also, to people who want to have a partnership structure but have legality of a private limited company.
  • One of the pros is limited liability that is personal assets of the partners will not be held in case any liability has arose and one of the cons is long procedures for closure.

Private Limited:

  • Involves two or more than two people, the designated partners and partners of the business. But as per a new concept included in the Law, single person can also open a Private Limited Company known as One Person Company (OPC).
  • Well suited usually for every industry but it all depends upon the business structure again. But better suggested for business planning to go international and also believe in having a very organized and compliant form of business.
  • One of the pros high creditworthiness, due to stringent compliances and disclosures required and one of the cons is availing loans and deposits from Directors, Members and Outsiders into the Company.

Choose well and ensure your company becomes a legend that lasts generations.

–  CS Yesha H Shah, B.Com, ACS                                                                                                                                                Yesha H Shah & Associates                                                                                                                                         Company Secretary

She specializes in the field of Corporate Laws, FEMA and RBI related areas. Her expertise ranges from obtaining basic registrations and meeting regular compliances to indepth analysis of a clients requirements to facilitate structural planning.

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