Which type of Business Organisation should I start ? (Prop/ Partner /Comp ) ? 

Which type of Business Organisation should I start ? (Proprietorship / Partnership / Company  ?)

Which type of business organisation (constitution of the firm ) should I have ? This should be the next question in your mind. There are many types of business organisation to consider. Some of these are:

• Sole Proprietorship firm

• Partnership firm

• Private Limited Company

• Public Limited Company

Sole Proprietorship firm:

In this business organisation the organisation is owned by a single person. All the assets, liabilities, Profits and losses are of that single person. This is one of the oldest and most popular type of business organisation in the country.

• • • A single person will form a firm and carry the activity. Normally, such activities, which require low capital requirement will be under this category.

    • Entire profit or loss will for the proprietor only.

    • The area of operation is generally limited to a specific area as the resources are limited.

    • Required papers for opening a current account of a proprietorship firm are:

      • • Proof of the name, address and activity of the concern like registration certificate (in the case of a registered concern).

        • Registration (in case of registered concern) / licensing documents issued in the name of the proprietary concern by the Central Government or the State Government Authority/Department.

        • Certificate /license issued by the Municipal authorities under Shop & Establishment Act.

        • PAN and Aadhar of the proprietor

        • Utility bills such as electricity, water and landline telephone bills in the name of the proprietary concern.

        • PAN and Aadhar of the proprietor.

Partnership firm:

Two or more than two persons agree to form a firm by contributing to the capital. Further, they also agree to share the profit or losses at a predetermined ratio.

• • • The name itself explains about this type of firm. Normally, two or more than two will join and form a firm with a name.

    • Maximum number of partners can be up to 100. ( earlier for Banking business – 10 and for any other business 20).

    • They will be writing the objects and the purpose of the partnership and this agreement is called ‘Partnership deed’.

    • Profits or losses earned by the partnership firm will be distributed as per the deed.

    • Partnership firm should have separate PAN and address proofs.

    • All the required licenses / permissions should be in the firm’s name only.

    • Advantages of a partnership firm are :

      • • It is very easy to establish a partnership firm (i.e.less cumbersome process )

        • Funds can be raised easily ( from partners )

        • Easier tax compliance process

        • The partners can be amended at any point of time ( after following the due process, which is not very difficult to follow)

    • Disadvantages of a partnership firm are:

      • • Partners are individually liable for the partnership firm’s debts.

        • Any disagreement among the partners may effect the performance of the firm.

        • Withdrawal from the partnership firm reduces the capital of the firm.

    • Process of forming a partnership firm:

      • • Identify a name for the partnership firm

        • Partnership agreement or Partnership deed should be prepared

        • Registration of the deed (optional)

        • Registration of the Partnership firm

        • Application for PAN of the partnership firm

        • Application for other required permissions / licenses

    • Required papers to open an account of the partnership firm :

      • • Firm’s registration certificate

        • Partnership deed

        • PAN of the partnership firm

        • Address proof of firm

        • PAN, Aadhar and address proof of the partners

      When the business grows and if the firms finds difficult to raise capital (from partners), then they can consider converting from partnership firm to company. This can be done at any point of time.

Private Limited Company:

Private Ltd Company can be seen as extended form of Partnership firm. Its a voluntary agreement among the shareholders to form a private ltd.co and carry on the business activity. Under this type of firm, there can be limited number of shareholders but general public are not permitted to subscribe either to its shares are debentures. Under this Private Ltd Co.

This is good / recommended for those people who wants to have limited liability yet there will be some control over the business.

Public Limited Company:

Public Ltd Co. is further extended form of Private Ltd Co. A public ltd. Co can have unlimited shareholders and general public are permitted to subscribe to share capital. The shareholders will not hold any right over the administration of the company. Only Directors will be managing the company affairs.

Identifying the right type of organisation depends on many factors. Some of the factors you should consider for selecting the type of organisation are:

                    Volume of the operations

                    Required Capital

                    Monitoring the organisation

                    Ability to take risks

                    Government policies

Comparison of Private Ltd Company and Public Ltd company:

Comparison of Proprietorship / Partnership / Private Ltd Co / Public Ltd Co:

Therefore, you should select the type of business organisation depending on all the above mentioned factors.

All the best