04 Feb 2019 06:53am IST
‘Make in India’ is a buzz word today. Government of Goa provides number of facilities and incentives to young entrepreneurs to start an enterprise. To prepare a Business Plan, the first requirement is to decide the type of ‘Business Entity’ in which to start the business. This will depend on number of factors such as ease of doing business, number of persons to be associated, capital requirement, management control, liability for income tax, regulatory compliance requirements etc. Many budding entrepreneurs do not have a clear idea about ‘Business Entity’ suitable for their business venture and are confused about its advantages and disadvantages.
Various forms of organisation in which business structuring can be done is given below for guidance of entrepreneurs.
1. Sole Proprietor: Business is owned by a single individual who contributes capital, manages the business and makes profit or incurs losses. Business can be carried on either in the individual name or under any name and style which should not correspond with a brand name or name of a private/public limited company or corporation. To open a bank account in the firm’s name, either registration certificate under Shops and Establishment Act or an affidavit giving declaration of ownership of business by proprietor should be furnished to bankers. Business can be started immediately after complying with applicable regulatory requirements for the business. Cost of formation is Nil. Income tax rates applicable to individuals is on slab rate basis at 10%, 20%, 30% above Rs 2,50,000 plus applicable surcharge and cess.
2. Partnership Firm: To form a Partnership Firm, minimum two and maximum twenty persons are required. Partnership is governed under Indian Partnership Act, 1932. The Partners should execute an agreement specifying therein names of partners, nature of business, capital contribution, sharing of profits or losses,salaries and interest to partners, powers and duties of partners, distribution of assets incase of dissolution. The Partnership Deed should be executed on stamp paper which varies from Rs 150 to Rs 5,000 depending upon capital contribution. Deed should be registered with the Registrar of Firms of the respective Taluka. Liability of partners is unlimited which extends to their personal assets. Income of the partnership is taxed at a flat rate of 30% plus applicable surcharge and cess after deducting specified remuneration to working partners and interest on capital.
3. Limited Liability Partnership (LLP): LLP is governed under Limited Liability Partnership Act, 2008 and is administered by the Registrar of Companies. LLP is a body corporate and exists as a legal person separate from its partners. It has perpetual succession. There should be minimum 2 designated partners out of which one should be resident in India. There is no limit on the maximum number of partners. An individual or a body corporate may become a partner in an LLP. After executing the agreement between partners/ designated partners the same should be incorporated with the Registrar of Companies after following prescribed procedures. Liability of Partners is limited to their capital contribution. Rights and duties of partners of an LLP are governed by the LLP Agreement. Right of a partner to share profits and losses is transferable. LLP has low cost of formation and fewer legal compliances.
For the purpose of taxation, an Indian LLP is treated at par with a partnership firm under Partnership Act 1932. Income of LLP is taxed at a flat rate of 30% plus applicable surcharge and cess after deducting specified remuneration to working partners and interest on capital.
4. ‘Company’ Under Companies Act, 2013 - Under this Act, there are 3 types of Company
One Person Company u/s 2(62)
Private Limited Company u/s 2(68)
Public Limited Company u/s 2(71)
i. One Person Company: An Indian citizen resident in India can incorporate a One Person company. There is no minimum capital requirement. However, it shall be required to convert itself into public or private company incase its paid-up share capital is increases beyond Rs 50 lakh or its average annual turnover exceeds Rs 200 lakh. This is a new concept.
ii. Private Limited Company: Forming a Private Limited company requires minimum 2 members. It can have maximum 200 members excluding past and present employees. It prohibits any invitation to the public to subscribe to any securities of the company.
iii. Public Limited Company: To form a Public Limited Company requires minimum 7 members and there is no upper limit for members.
To incorporate a company legal documents by way of Memorandum of Association (MOA) and Articles of Association (AOA) are required to be executed. MOA should specify the name, registered office address, objects, name of shareholders and shareholdings. AOA should specify the regulations for company’s operation, appointment of directors, holding of meetings, and other procedural matters. The Company is incorporated with Registrar of Companies after following prescribed procedures and paying prescribed filing fees.
Income of company is taxed at 25% or 30% plus surcharge and cess as applicable depending on turnover.