Are you looking to start a new business? Then, one of the most important things to take care of is the ownership structure. To ensure that the control structure of your business supports your goals, the main factors to consider would be liability, financing, simplicity, and taxes.
Based on these factors, there are five different types of business ownership in India, as discussed below.
- Sole proprietorship
A sole proprietorship refers to an unincorporated business owned by a single owner who alone pays income tax from the profits earned through the firm. This is one of the simplest forms of business ownership where the owner possesses absolute control over their business. Business loans are also easy to come by for sole proprietorship.
- Partnership firm
As per the Indian Partnership Act of 1932, a partnership firm is one in which the “relation between the persons who have agreed to share the profits of a business is carried on by all or any of them acting for all.” This means that the partnership firm is not a separate legal entity, distinct from the partners composing it. These partners may either be individuals or interest-based organizations, even schools or government institutions.
- Limited liability partnership
In the case of a Limited Liability Partnership or LLP, each of the firm's partners' liabilities is limited to the sum of money they have invested into the business as capital. As a result, if the business fails someday, creditors do not have the authority to seize any partner's personal assets or income. However, such businesses usually involve high start-up cost, so you may need to take a loan at affordable home loan interest rates to start it.
- Private limited company
A private limited company is one in which the firm is owned by a small group of shareholders or company members, but not an institution, governmental or otherwise. Private limited companies may be limited by shares wherein each member’s liability only extends to the nominal share value they hold. These companies may also be limited by guarantee wherein each member’s liability is limited to the guarantee they have agreed to invest under the Memorandum of Association (MoA). There can also be unlimited companies with no limitations on the members' liability.
Easy credit options at competitive business loan interest rates are available if you wish to set up your private company.
- Public limited company
A Public Limited Company (PLC) is also a limited liability company but one where the shares are offered to the general public. Meaning, these companies' stock can be acquired by anyone, either publicly via trading in the stock market or privately through Initial Public Offering (IPO). To form a PLC, a minimum of seven shareholders are required.
Summing up
Now that you know the different types of business ownership types available for you, choose your ideal structure wisely by taking into consideration factors such as degree of personal risk and liability involved, registration and maintenance costs, and taxation.
Moreover, if you’re availing business finance to fund your venture, make sure to go through your lender's business loan eligibility criteria thoroughly. You can also use the online business loan EMI calculator to plan your finances beforehand.
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