More entrepreneurs in India have started to become aware about the importance of having a legal business structure and are registering their business as a sole proprietorship, an LLC, or as a partnership. In fact, according to a recent report, over 185,000 companies were registered in the country last fiscal, which was significantly higher than the count from the previous year. If you’re about to take the big leap into entrepreneurship, be aware that choosing a structure is an important step in the formation of your business since it will have an impact on your financial health in the long run. Not only will it determine the amount of taxes that you’ll have to pay, but it will also affect your personal liabilities and legal responsibilities later on.
Being an entrepreneur can be a challenging yet rewarding experience, and the initial steps that you take to build your venture will determine your success. Whether you’re opening a cosy cafe in Mumbai or a real estate business in Hyderabad, here’s what you need to know about choosing the best structure for your startup.
Sole Proprietorship
If you own a low-risk small business with low profits and you only need yourself to run it, then choose a sole proprietorship structure for your business. This is an excellent option for startups since it’s simple and affordable, and there’s less paperwork to deal with. You may also end up paying lower taxes, especially if you run your business from home since utilities, housing, and internet costs can be written off. Another thing that’s great about sole proprietorship is that you don’t need to formally register your business with the government. If you’re a startup owner in India, you can register as an SME (Small and Medium Enterprises), a GST (Goods and Service Tax), or as a shop establishment instead so you can legally run your venture and create a professional and reputable image for your business.
As to what type of businesses can be a sole proprietorship, any type of business will be suitable, but it’s a perfect fit for online, service-based, and home-based businesses. If you’re a personal trainer, a content creator, virtual assistant, a nail technician, plumber, electrician, photographer, makeup artist, or a small bakery owner, you can definitely register your business as a sole proprietorship. It’s also good for those who want to test their startup idea first before forming a larger or more formal business. Keep in mind though that as a sole proprietor, you’ll be responsible for all the debts and litigations that fall on your business. In case of unpaid debts, banks and debt collectors may access your personal savings and other assets until your business debts have been paid off. Hence, you may want to consider getting professional liability insurance to protect your source of income.
Limited Liability Company (LLC)
Business owners that need more personal liability protection should consider registering their business as a Limited Liability Company or an LLC. Unlike sole proprietorship, an LLC ensures that only the business’s assets will be used to pay off debts. Since owners can’t be held responsible for them, their personal assets are secured, and LLC members are also provided with limited liability. Starting an LLC is easier than other forms of business structures, such as a corporation, since there’s fewer paperwork and less expenses. You also don’t need to have annual meetings or elect a board of directors, which can make running your startup a lot simpler.
Some of the most popular and efficiently-run companies in the world, such as Sony, Hertz Vehicles, and Pepsi-Cola are LLCs, so if this structure worked for these brands, it’s likely that it may be suitable for your venture too. Businesses that are well-suited for an LLC are real estate companies, e-commerce businesses, and restaurants and cafes, among others. Professional service providers such as doctors, lawyers, and accountants can also register their practice as an LLC. If you have no idea how to set up this type of legal business structure, consider getting help from a company that provides LLC formation services. Not only will they take care of your paperwork, but they can also provide a digital mailbox to receive legal documents for your business. Make sure to get a coupon to get discounts on services and save money while starting an LLC.
General Partnership
Starting a business with a friend or relative? Consider a general or joint partnership structure for your startup. In a general partnership, two or more individuals form an arrangement to share responsibilities tied to the business, and they also agree to share the profits and liabilities. This has the potential to make a business launch successful since two or more people can pool their resources, time, and abilities to make the venture grow.
What’s more, if you partner with someone who can provide what’s missing from your business idea to bring it to life, such as funding, physical premises, or the means to create a new product or service, you’ll be able to launch sooner and get your business off the ground. Any kind of business can be registered as a general partnership, but see to it that you’re on the same page with your business partner when it comes to important matters, such as getting loans or hiring extra staff. Always keep in mind that you’re mutually responsible for all the expenses, debts and liabilities incurred by your startup.
Choosing a structure for your business is one of the most important things that you need to do to launch your startup. Consider the pros and cons before making a decision, and get some advice from experts to know what’s right for you.
