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Earlier in this series of articles, we have discussed about the forms of businesses, registered and unregistered, and have discussed in detail about the unregistered business structures. Given the existing understanding on selecting a right business structure, this article will help in narrowing down your approaches while selecting an appropriate business structure for your new and/or existing business in India.
Basis above, we would like to focus your attention on the following registered possible business structures in India for guiding your approach towards the favorable direction and an organized universe:
Different Types Of Registered Business Structures:
Registered business structures, typically referred to as organized business structures, are the complex yet simple form of business structures. Through complex yet simple form of business structures, we mean that such structures may be incorporated through a lengthy process and comes with a complex compliance management as compared to unregistered business structures but once equipped with the understanding about the compliances, such structures can reap million other benefits in long run.
Such business structures are tagged along with more pros than cons which are as follows:
The cons are significantly limited to the associated costs, whether actual or opportunity but the satisfaction of pros can over-power the cons of the registered business structures.
Let us now quickly look at the forms of registered business structures and the necessary structural procedures associated with their creation:
A registered partnership in India is established in accordance with the Indian Partnership Act, 1932 and partnership deed between the partners are governed by the said law along with the Indian Contract Act, 1872. By registered partnerships, we mean that a partnership as an option, can be registered with the Registrar of firms (ROF) through a written partnership deed.
The aforesaid pros and cons are not completely applicable on the registered partnerships. Such structure may be registered but are similar to the unregistered partnerships which was discussed previously.
A partnership deed usually should have the following clauses as the essence clauses:
Starting a business with a registered partnerships is comparatively easier and is subject to lesser rules and regulations than any other forms of business. A registered partnership can begin in a few days with almost insignificant costs and can be formed according to the following process:
Limited Liability Partnerships
A Limited Liability Partnership (‘LLP’) is a partnership structure of two or more partners with a limited liability. An LLP is created and governed in accordance with the Limited Liability Partnership Act, 2008 read with the Limited Liability Partnership Rules, 2009. An LLP, as the name suggest, has corporation and partnership elements, and has a separate legal existence which is different from its partners.
An LLP like the partnerships, is governed by the provisions of the LLP Agreement in addition to the aforesaid act and rules. Comparatively, it comes with a lower level of compliances, lower costs with an easy day to day operations.
Starting your venture through an LLP is comparatively easier and hassle-free. Many budding entrepreneurs in India considers this as a boon for them to begin their business through an LLP. The following are some of the features of an LLP:
Talking about the negatives, an LLP cannot raise funds through equity and has always been less lucrative while raising funds from an investor.
The process of incorporating an LLP is altogether an online process wherein the filings are made on the website of the Ministry of Corporate Affairs (‘MCA’). Such process has been briefed below for your reference:
Limited Liability Company
A Limited Liability Company is a business structure with a legal existence separate from its members and is capable of being survived until perpetuity. A Limited Liability Company in India is created and governed in accordance with the provisions of the Companies Act, 2013.
A Limited Liability Company can further be categorized into the following type of companies:
A Limited Liability Company comes with the following Characteristics:
Besides the aforesaid characteristic of a limited liability company, it comes with numerous pros and a few cons which are as follows:
Thus, we can say that the aforesaid information about the registered business structures may be enough to make a wise and sound decision before choosing the right structure for your business. However, it is important to weigh all the pros and the cons of any business structure depending upon your vision and upon your long-term goals.
Please note that there may be additional other factors while choosing a business structure. Such factors have not been elaborated in this series of articles like tax rates, government subsidies, locational advantages etc. which should be accounted for while making any decision with respect to choosing any business structure.