The steps in starting a small business include creating a viable business plan, doing the relevant market research, finalizing funding sources and pinning down the business model.
Once you have validated your idea with these steps, you will have to undertake the legal formalities of setting up a business in the country.
Selection of business entity is among the first legal decision taken by an Entrepreneur while starting a new business.
It’s vital for the Entrepreneur to understand the pros and cons of every single business entity and choose the correct one. Among the choice of For-Profit entities available like Proprietorship, Partnership, Limited Liability Partnership, One Person Company, Private Limited Company, and Public Limited Company, a few are ideal for most Entrepreneurs.
In this article, we compare those types of entities viz. Proprietorship vs Partnership vs One Person Company vs LLP vs Private Limited Company.
Registration
Proprietorship
There is no formal registration for Proprietorship.
Partnership
Partnership can be registered or unregistered. Registration of Partnership is optional. If registered, Partnership is registered under the Partnership Act, 1932.
One Person Company
One Person Company will be registered with the Ministry of Corporate Affairs under the Companies Act, 2013.
LLP
LLP will be registered with the Ministry of Corporate Affairs under the Limited Liability Partnership Act, 2008.
Private Limited Company
Private Limited Company will be registered with the Ministry of Corporate Affairs under the Companies Act, 2013.
Name of the Entity
Proprietorship
The Promoter’s choice of name can be used for the Proprietorship. No approval is necessary for using the name; however, it is good to avoid trademarked names.
Partnership
The Promoters choice of name can be used for the Partnership. No approval is necessary for using the name; however, it is good to avoid trademarked names.
One Person Company
The choice of the name provided by the Promoter must be approved by the Registrar of Company. Only names that are not identical/similar to an existing company or LLP name and names that are not offensive or illegal would be allowed. The name of the entity will end with the words “OPC” or “One Person Company”.
LLP
The choice of the name provided by the Promoter must be approved by the Registrar of Company. Only names that are not identical/similar to an existing company or LLP name and names that are not offensive or illegal would be allowed. The name of the entity will end with the words “Limited Liability Partnership” or “LLP”.
Private Limited Company
The choice of the name provided by the Promoter must be approved by the Registrar of Company. Only names that are not identical/similar to an existing company or LLP name and names that are not offensive or illegal would be allowed. The name of the entity will end with the words “Private Limited Company”.
Legal Status of Entity
Proprietorship
Proprietorship is not recognized as a separate legal entity and the promoter is personally liable for the liabilities of the Proprietorship.
Partnership
Partnership is not recognized as a separate legal entity and the promoters are personally liable for the liabilities of the partnership.
One Person Company
One Person Company is a separate legal entity registered under the Companies Act, 2013. The Director and Nominee Director of a One Person Company are not personally liable for the liabilities of the Company.
LLP
LLP is a separate legal entity registered under the LLP Act, 2008. The partners of an LLP are not personally liable for the liabilities of the LLP.
Private Limited Company
Private Limited Company is a separate legal entity registered under the Companies Act, 2013. The Directors and Shareholders of a Private Limited Company are not personally liable for the liabilities of the Company.
Member(s) Liability
Proprietorship
Proprietor has unlimited liability and is responsible for all the liabilities of the Proprietorship.
Partnership
Partners have unlimited liability and are responsible for all the liabilities of the Partnership.
One Person Company
Director and Nominee Director have limited liability and is liable only to the extent of his/her share capital.
LLP
Partners have limited liability and are liable only to the extent of their contribution to the LLP.
Private Limited Company
Shareholders have limited liability and are liable only to the extent of their share capital.
Minimum Number of Members
Proprietorship
Can have only one person as a member.
Partnership
A minimum of two persons are required to start a Partnership.
One Person Company
A minimum of two persons are required to start a One Person Company, viz. Director and Nominee Director.
LLP
A minimum of two persons are required to start an LLP.
Private Limited Company
A minimum of two persons are required to start a Private Limited Company.
Maximum Number of Members
Proprietorship
Can have only one person as a member.
Partnership
The maximum number of partners can be only 20.
One Person Company
A One Person Company can have only two people, viz. Director and Nominee Director.
LLP
An LLP can have an unlimited number of Partners.
Private Limited Company
A Private Limited Company can only have a maximum of 200 shareholders or members.
Foreign Ownership
Proprietorship
Foreigners are not allowed to start a Proprietorship.
Partnership
Foreigners are not allowed to start a Partnership.
One Person Company
Director and Nominee Director cannot be Foreigners.
LLP
Foreigners are allowed to invest in an LLP only with prior approval of Reserve Bank of India and Foreign Investment Promotion Board (FIPB) approval.
Private Limited Company
Foreigners are allowed to invest in a Private Limited Company under the Automatic Approval route in most sectors.
Transferability
Proprietorship
Not transferable.
Partnership
Not transferable.
One Person Company
Ownership can be transferred.
LLP
Ownership can be transferred.
Private Limited Company
Ownership can be transferred by way of share transfer.
Existence or Survivability
Proprietorship
Existence of a Proprietorship business is dependent on the Proprietor.
Partnership
Existence of a Partnership business is dependent on the Partners. Could be up for dissolution due to death of a Partner.
One Person Company
Existence of a One Person Company is not dependent on the Director or Nominee Director. Could be dissolved only voluntarily or by Regulatory Authorities.
LLP
Existence of an LLP is not dependent on the Partners. Could be dissolved only voluntarily or by an Order of the Company Law Board.
Private Limited Company
Existence of a Private Limited Company is not dependent on the Directors or Shareholders. Could be dissolved only voluntarily or by Regulatory Authorities.
Taxation
Proprietorship
Taxed as an individual, based on the total income of the Proprietor.
Partnership
Partnership profits are taxed at 30% plus surcharge and cess as applicable.
One Person Company
One Person Company profits are taxed at 30% plus surcharge and cess as applicable.
LLP
LLP profits are taxed at 30% plus surcharge and cess as applicable.
Private Limited Company
Private Limited Company profits are taxed at 30% plus surcharge and cess as applicable.
Annual Statutory Meetings
Proprietorship
No requirements to conduct annual statutory meetings.
Partnership
No requirements to conduct annual statutory meetings.
One Person Company
No requirements to conduct annual statutory meetings.
LLP
No requirements to conduct annual statutory meetings.
Private Limited Company
Board and General Meetings must be conducted periodically.
Annual Filings
Proprietorship
No requirements to file an annual report with Registrar of Companies. Income Tax Return must be filed based on the income of the Proprietorship.
Partnership
No requirements to file an annual report with Registrar of Companies. Income Tax Return must be filed for the Partnership.
One Person Company
One Person Company must file Annual Accounts and Annual Return with the Registrar of Companies each year. Income Tax Return must also be filed for the One Person Company.
LLP
LLP must file Annual Statement of Accounts & Solvency and Annual Return with the Registrar each year. Income Tax Return must also be filed by the LLP.
Private Limited Company
Private Limited Company must file Annual Accounts and Annual Return with the Registrar of Companies each year. Income Tax Return must also be filed for the Private Limited Company.
Registration Cost
Proprietorship
HG Corporate Advisors Don’t offer Proprietorship Registration.
Partnership
HG Corporate Advisors Don’t offer Partnership Registration.
One Person Company
HG Corporate Advisors offers One Person Company Registration at an all inclusive price of Rs. of `11,000/-
LLP
HG Corporate Advisors offers LLP Registration at an all inclusive price of `8,300/-
Private Limited Company
HG Corporate Advisors offers Private Limited Company Registration at an all inclusive price of Rs. of `13,700/-
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