Disadvantages of Sole Proprietorship
But this form of business involves much risk as all the liability is on you and you have to pay the debt from your personal assets too. There is no way of raising funds in this kind of business form.
You are planning to start your business and you have 3 or more people who are interested to work with you. Then the most suitable form which seems will be the partnership. The partnership is further of two kinds i.e. Limited liability Partnership ( LLP) or Registered Partnership firm. Registered Partnership Firm is often chosen because it carries with it various liabilities and risks. Nowadays startups are choosing Limited Liability Partnership (LLP) over the other form of business because it has various benefits. LLP offers you blend of partnership and company, therefore, it is considered best choice. Below mentioned are pros and cons of LLP.
Advantages of a Partnership Firm
LLP offers limited liability, offers tax advantages, can accommodate an unlimited number of partners, and is credible in that it is registered with the Ministry of Corporate Affairs (MCA). It is suitable for low budget. Normally startups don’t have much funding so this can be beneficial for such startups. LLP Act, 2008 is also more flexible with legal compliance. You don’t need to comply with so many requirements as in case of companies.
Disadvantages of Partnership Firm
LLP cannot raise funds by issuing share or stock certificates in future. This can be a disadvantage for a growing startup.
Company/ Corporation- Company is a legal entity registered under Companies Act, 2013. If we analyze the long term benefits of the company it is a most suitable form of business organization. It is altogether an artificial person. But it is not considered suitable for startups which have a future risk and less funding. Also, the complicated procedure involved makes it difficult for tech startups to understand it. However, there is a new form of company that is recognized under Companies Act, 2013 i.e. One person company which is considered suitable for startups. Below listed are pros and cons of One Person Company .
Advantages of forming a Company
It has separate personality in the eye of law. It has minimum regulations as compared to the company. It gives you complete control over the entity. Also, tax benefits are there under Income Tax Act for One Person Company.
Disadvantages of Incorporating a Company
The registration process of companies is similar to the private limited company which is complex. If the capital goes beyond certain limit then it will ultimately have to be converted into Private Limited Company
The mere conclusion is that the choice of the form of business depends on the funds available, number of the person involved, long-term goals and other factors. None of them can be said to be the best. Each one has its Advantages and Disadvantages. You need to analyze each of them as per your requirement.
The laws relating to startups in India are different for each business model. Legistify connects you with the best lawyers in India and top Chartered Accountants in India with simple telephonic conversation or email. Call us at 011-33138123 or send us an email at email@example.com to get started.