Which is the Best Company Structure for Your Business?

by Gaurav Bansal Company Registration Consultants in Delhi

Give right wings to your business idea and watch as it flies to touch the greatest heights of success! With hundreds of creative idea budding everyday India is becoming the hub of startups. All these startups are running towards getting their company registered. However, most of them fail to understand the importance of choosing the right company structure. A right company structure is essential for giving your business idea a strong and sturdy foundation. Thus, before moving forward with getting the company registered every entrepreneur shall make a decision regarding which this best suitable business vehicle for him. How can you take this decision? Obviously for taking this decision you need to go comprehensively go through the pros and cons of each type of business and understand their suitability for your idea. To drive out the hassles of searching through the multiple blogs out of your way in this blog we will discuss the types of company structures and their suitability.

Sole Proprietorship

As its name rightly suggests a sole proprietorship is a form of business that is registered in the name of the sole owner. This single person is solely responsible for all the activities of the business. The major benefit associated with this type of company is its ease of formation and management. Just like every coin has two sides there are also some disadvantages of this business structure. The legal identity of this form of company is not separate from its owner, thus he is personally liable for meeting the liabilities of the company. This puts the owner’s personal assets like his car, bank account balances, the house at a risk.

Suitability- A sole proprietorship business is most suitable for a very small scale business that is owned by an individual having no employees and no significant transactions with suppliers, vendors, and contractors.

Partnership Firm

The concept of partnership firm is closely related with the sole proprietorship firm. However, the major difference between the two is that a partnership firm consists of two persons while the sole proprietorship is made up of only one person. There is a legal agreement between the partners of this firm stating the roles, responsibilities and the share of each partner. One of the major drawbacks of this form of company is that there is no limit on the liabilities of members and they are personally responsible for any profit or loss of the company. Due to this, the partners have to compensate the losses with their personal assets if the need arises.

Suitability- It is suitable for any two people who desire to come together and work with each other. However, in general, professional tend to advise against it as do not provide a shield to the partners against liability for their partners.

One Person Company

The concept of one person company was introduced with the companies act 2013. This form of company structure was introduced as an improvement over the sole proprietorship firm. The concept of this company is largely similar to the sole proprietorship firm however the main difference is that the liability of the owner is limited to his share only. Thus, his personal assets are not a risk at if losses of the company are to be recovered. With benefits comes certain disadvantage also. The formation and management of one person company are comparatively complex than a sole proprietorship.

Suitability- This form of business structure is suitable for you if you are an individual desiring to start a business on a small scale while keeping a limit to your liabilities and undertaking transactions with multiple outsiders like vendors, suppliers, and contractors.

Limited Liability Partnership

The concept of limited liability Partnership was introduced as an improvement over the traditional form of partnership firm. Thus, both the concepts are largely similar however the there exists one major difference between the two. Unlike the traditional form of partnership, the liability of a member of LLP is limited to their share only. This provides the shield to the partners of the LLP and protects their personal assets.

Suitability- This form of business structure is highly suitable for the professionals who desire to come together and render their services while keeping a limit on their overall liabilities.

Public Limited Company

Public limited Company structure is comparatively a large scale of business that is incorporated by minimum 7 members with no upper cap on the maximum number of members. The legal identity of the public limited company is completely distinct from its members and the liability of members is limited to their share only. This form of business structure is regulated strictly and is required to publish their true financial positions because they are empowered to collect funds from the public at large. The securities of this company structure are readily traded on a stock exchange and can be easily brought and sold from there. The rules of forming and managing this form of company structure are comparatively stringent than others as it involves the interest of the public at large.

Suitability- This company structure is usually suitable for the entrepreneurs desiring to work on a large scale and raise funds for business expansion from the public at large.

Private Limited Company

This is the form of privately held business that can be incorporated with minimum 2 and maximum 200 members. The liability of the members of the private limited company is limited to their share only. Also, there are a lot of rules and regulation that are applicable to the public limited company but not the private limited company. However, unlike public limited company here the transfer of shares is limited to its members and the general public cannot subscribe to its shares and debentures.

Suitability- This company structure is the most suitable options for the startups as it provides multiple benefits along with resting the control of the owner and a high degree of privacy.

Conclusion

There is always a possibility of change. After getting your company registered with any one of these business structures you may feel the need to either expand it or transform it in other forms to make sure you are using the one that provides the most benefits. Thus, make sure to stay updated.