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In India, an entrepreneur starting out a new venture, can chose (i) Sole Proprietorship (ii) Partnership (iii) LLP (iv) Private Limited Company.
Each form of business structure has its own pros and cons. An entrepreneur needs to closely analyze all such advantages and disadvantages before finally deciding to go ahead with a particular structure. The criteria ranges from legal structure, associated costs, tax implications, compliances, perception of outside parties etc.
To help you better understand the features of each structure and to decide which structure suits your requirements, a comparative table is shown below:
| Particulars | Proprietorship | Partnership | LLP | Private Ltd. Company |
|---|---|---|---|---|
| Registration Requirements | Not Required | Not Mandatory | Mandatory | Mandatory |
| Number of Owners | One (1) |
Min. : 2 |
Min.: 2 |
Min.: 2 Max.: 50 |
| Legal Entity | Not separate from Owners | Not a separate legal entity except for taxation purposes | A body corporate & a separate legal entity | A body corporate & a separate legal entity |
| Total Number in India | Approximately 90% of businesses in India are Proprietorship | Approximately 2-3% of businesses in India are Partnership | 1238 (as on 28/04/2010) | 7,88,691 (as on 31/03/2008) |
| Owner's Liability | Owner is fully liable for any act done | Liability of partners are joint & several (unlimited) | Liability of owner/partner is limited to contribution made by each partner (limited liability) | Limited liability of owners. |
| Management | Managed by owner | Generally managed by Partners | Generally managed by partners | Managed by directors (who may be owners also) |
| Suitable for | In businesses, where legally binding agreements are usually not entered with clients; small scale; Low capital requirement For eg: Glossary shops | When 2 or more persons together want to start business and perpetuity of business is not given consideration while entering into deals with clients. | Same as partnership but liability of partners become limited & perpetuity is established. Most suitable for businesses requiring multi dimensional professional backgrounds. | Where client looks for perpetuity and more creditability is required for business deals. |
Though a body corporate such as Private limited Company has more cost associated with it due to registration and compliance requirements, most start-ups in fields such as technology, IT and manufacturing prefer the corporate structure as it enhances creditability and acceptance from clients, suppliers and financial institutions.
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