If you are planning to expand your business nationwide, or to an international level, you might need to restructure your business. Not merely in expansion, but even if you are rolling out new product lines or fresh investment is pouring into the business, then also business restructuring might be one of your concerns.
We don’t need to reinforce the fact that the kind of legal structure you incorporate in your organisation, it will not only have a direct impact on taxes, liquidity, liabilities & flexibility in operations but also on the diversification and scalability of the business.
Types of Business Structures in India
Simplest business structure, only one person owns the business. Can be incorporated within 10 days. Preferable for small traders and merchants. Unlimited liability of proprietor and obviously no option for equity funding.
General Partnership (GP)
Multiple owners, that is, partners. Partners own and manage the business and are responsible for its liabilities. Easy to incorporate, within 4 days once the partnership deed is sorted. Expensive and more regulation that sole proprietorship.
Limited Liability Partnership (LLP)
Blend of general partnership (simple structure) and Private limited company (limited liability of owners). Other partners can’t be held liable for wrongful acts of one partner. Economical to incorporate ( no paid-up capital required) and sustain (easy to make structural changes) as compared to companies. Tax advantages: No DDT or tax surcharge on profits above 1 crore.
One Person Company
Unlike the previous two structures, it is an independent legal entity, separate from the owners. Limited liability of the proprietor. No option for equity funding. High compliance: Statutory audit, annual and income tax returns. Incorporation cost same as Pvt. Ltd. company and fewer tax advantages.
Private Limited Company
Limited liability of the shareholders. Better prospects for raising capital. Fewer tax benefits: flat 30% tax on profits. Dividend Distribution Tax (DDT) and Minimum Alternate Tax(MAT). High compliance and accounting costs. Suited for big scale business with stable finances.
Factors Influencing Structure Selection
- Legal liability (the extent to which owners can be held liable for the company’s liabilities);
- Tax implications (cash flow requirements and double taxation);
- Cost of formation (incorporation, administrative, compliances and accounting costs to be considered);
- Flexibility (owners goals and business requirements are needed to be synced);
- Future needs (what will happen to the business if owners’ demise, do you wish to sell your business in future, how would you scale your business, plans for any international expansion).
Please take note that all the business structures exist to cater to various organisations of different sizes existing in different industries and targeting a different market segment and no business structure is per se superior to another. Members are allowed full participation in management.
We have assisted 1,500+ organisations from various industries and of various sizes to structure their business in such a manner that it’s not only optimal but also resonates with the ultimate vision and mission of the founders. We incorporate thirty to forty companies EVERY MONTH, and we have a global presence allowing us better exposure and thus better insights on industries.
We are your one-stop destination for all the financial, accounting, taxation and compliance requirements of your business saving you on the cost of coordinating with multiple service providers and changing the service provider once the business outgrows their competence.
To know how we can help you in laying the foundation of your entrepreneurial journey, give us a call on 7727887799 (also available on WhatsApp) or drop us an email containing your business requirements at email@example.com and our team will reach out to you within 2 hours.
We help in structuring your business, along with providing a range of other services to take full accountability as the virtual CFO to your business.
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