Choose the right business entity for your Startup

In India to start a business you need to select a particular business entity. To select a particular business entity you need to know plenty of factors such as taxation, owner liability, compliance burden, investment and funding strategies.

Before beginning a startup, choose your business entity

Sole proprietorship –

· Requirements:-Need 1 Person for the Registration.

· Costing — Nearby 3000 INR for the Service tax registration or Shop Act License as Sole Proprietorship Firm and takes max 6 to 7 days for incorporation.

· Advantage — Easy to start with less costing and less compliance.

· Recommendation: — If you are testing your idea in the service based business, you can start from this kind of entity and when your company will start growing then simply convert it into the Private Limited Company.

· Reason to Avoid- It’s a simple firm having no limited liability and cannot raise the funds for your new startup

This is a small user with a small shop

Partnership firm —

A partnership firm in India is governed by The Partnership Act, 1932. Two or more people can form a Partnership subject to maximum of 20 partners.

· Requirements: — Need Min 2 Person for the Registration as you or else you can include your any family member on the paper.

· Costing: — Nearby 7000 INR to 8000 INR with the Government Charges.

· Advantages: — It’s a best choice for the Family Business.

· Recommendation: — We never recommend for the Partnership Firm. Reason is Costing is nearby same as LLP then why not choose LLP which is the mixture of the Partnership Firm and Private Limited Company.

· Reason to avoid: — When LLP Gives you more advantages in same costing or taxation then why avoid the LLP instead of Partnership Firm with the Registrar of Firms.

Partnership

Limited liability partnership —

It’s a new form of business entity established by an Act of the Parliament. Such kind of firm allows members to retain flexibility of ownership (similar to Partnership Firm) but provides a liability protection.

· Requirements: — Need Min 2 Person for the Registration as you or else you can include your any family member on the paper.

· Costing: — Nearby 9000 INR with the Government Charges.

· Advantages: — Doing the Business with the limited liability in less costing.

· Recommendation: — If your budget is less and wants to enjoy Limited Liability and private limited company feature then LLP is the Best for your startup.

· Reason to avoid: — If you want to raise the funds in future or next 1–2 years then must choose private limited company instead of LLP.

Limited liability company

One person company —

It is a newly introduced type of company and was introduced in the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity.

· Requirements: — Need 1 Person for the Registration.

· Costing: — Nearby 13000 INR with the Government Charges, takes min 12 to 15 days.

· Advantage: — No Control of another person in the Business or Company with Limited Liability.

· Recommendation: — If you need company legal status as single founder then go with the One Person Company or else ignore the One Person Company and Choose a Private limited company instead of One Person.

· Reason to avoid: — We invest nearby 13000 INR but in future we cannot include a partner in the business so why not go with the private limited company just spending extra more 2000–3000 INR because it’s a onetime investment for your startup.

Private limited company —

This kind of firm is comprised of minimum of two members and maximum of fifty. Who own the company as share holders and the profits and losses are also divided according to those share ratios.

· Requirements: — Need 2 Person for the Registration as you or else you can include your any family member on the paper.

· Costing — Nearby 15000 INR with the Government Charges in most of the states

· Advantages: — Raise the funds from banks, angel investor and VC Firms.

· Recommendation: — If your vision is raise the funds & growing startup and need trustworthiness among the clients then must go with the company.

· Reason to avoid: — It’s a company so setup costing is high and annual compliance is more as compare to firm or any other legal entity.

Private limited company

NGO —

These are self-governed by a board of trustees or ‘managing committee’/ governing council, comprising individuals who generally serve in a fiduciary capacity; produce benefits for others, generally outside the membership of the organization.

NGO structural type in India –

· Trust

· Society

· Section-8 Company under Companies Act-2013

NGO for old age people

Registrations or licenses required after formation of entity in various departments

Taxes that are important

· Sales tax

· Service tax

· PAN/ TAN

· Intellectual property rights

· Food licenses

· Provident fund/ ESIC

Importance of financial planning in startups

  1. Protect the Business

One of the main challenges startups face is lack of financial support for the business. Business owners have plenty of choices to choose from so that they can avoid cash shortage, which includes giving up a percentage of the business’ equity in exchange for finances from other investors. This helps with the financial conditions but one looses the control over their business, as well as equity. To inject more finances into the company, the best escape is bank loan.

2. Simplify Accounting

For proper accounting, invest in an effective accounting system. Prepare a budget, adhere to it, and avoid overspending. There are basic, easy-to-use software that can help you. You can upgrade to more sophisticated and expensive software once the business grows.

3. Avoid Extravagance

When starting your business, you don’t need the most expensive equipment, office space, furniture or take costly business trips. Cost-cutting is very important because it leaves you with more money to invest and not spend.

4. Source for Additional Funds

There is high risks involved in startups, lenders are skeptical about extending loans to small businesses. Rushing into a loan without considering a repayment plan is a stupidity. Banks today have better lending power and their interest rates are reasonable. If the startup will fulfill the bank repayment then go for it. There are plenty of funding options available. Compare and then settle for the best. Watch out for hidden costs because some lenders don’t fully disclose the charges.

5. Lean Staff

Even if you have mega growth plans, you should keep the hiring of the staff at a minimum level. For a startup, you won’t require a big office space to settle all your staff; you can opt to outsource some services to independent co working spaces. Employ important personnel on stable bases and others can be freelancers.

Considering an insurance policy becomes mandatory in a startup business to cover risks and safegaurd the business from mishappenings.

The above points were discussed by Karan Malhotra in the recent workshop of HelloMeets.

Our coming up workshops -

Negotiating with the Clients & Investors — Sunday | 7th August | 9:30 am to 5 pm

Data Drives Love — Sunday | 21st August | 5pm to 7pm

Photoshop Workshop — Saturday | 27th August | 10am to 2pm

Digital Marketing Workshop — Sunday | 28th August | 11 am to 5pm

Blog credits — Tripti Jain, Content Writer, HelloMeets.

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