Few days ago we gave you some quick and effective tips on how to register your startup via INC-29 form. But before you start with your dream venture, you must understand that choosing what form of business you wish to start is very critical. It’s as important as important as oxygen to a human body, choosing the right form of business directly impacts on the growth and profits of your business.
We have noticed that nowadays startups have this habit of not thinking it through when it come to choosing their company type. This fatal habit will not only cost your company, but can also keep you away from many legal benefits. So it’s crucial to understand your business on a micro level and choose the company type wisely. Although, there is no fixed formula to choose the right business, choosing of business type is like choosing a home. You must choose the form cautiously and get it vetted by an expert to understand it’s opportunities and limitations.
The two most common types of business organisation are…
-
Proprietorship
-
Partnership
The simplest form of business is the sole proprietorship. It is not a legal entity, in simple words, a person who starts his business under sole proprietorship is personally responsible for its debts. On the other hand, Partnership is a form of organization which requires two or more individuals to manage and run the business. All the partners are equally and personally liable for the debts from the business.
A proprietorship can operate under owners name or fictious name like ‘Asia Atlantic Enterprise.’ The name of the company in such type of business is merely a Trade Name and does not carry any legal weightage as its an unregistered name. Unlike, Partnership where the firm name is trademarked, a Trade Name can be easily copied by another entity.
In a way Partnership and Proprietorship are like two different apples from the same tree. The only major difference between them is the involvement of multiple persons in Partnership, opposed to single representation in a Proprietorship type firm.
Some of the other important forms of businesses are One Person Company(OPC), Private Limited, Public Limited, and one of the hybrid version of Partnership firm, which was introduced in the year 2008, Limited Liability Partnership (LLP). Each have their own advantages and disadvantages. Case in Point: If you are really planning something big or if you are actually running a big business and you wish to expand than Public Limited Company is the best bet for you. According to the various credible sources by making your company public seals the faith of investors in you and your business. It reassures them that your are not short-sighted and you have every intention of going for the biggest piece of pie, which automatically increases the valuation of your business by 10 to 15 times.
