Fri. Nov 27th, 2020

World Trades

Finance Blog

Starting a Business: How is a Company Incorporated in India?

3 min read

Entrepreneurs wanting to incorporate company in India are not taking a dip into something they don’t fully understand or are not even familiar with.

However, sheer knowledge on how to market goods or services is not enough to guarantee success. It is imperative to be aware of the environment where one stands to get into. For one, the corporate world is not as simple as many think it is.

In this article, allow us to present a list of basic business types with corresponding salient points.

Sole Proprietorship

As the name suggests, a sole proprietorship is a company incorporated with just one person taking full control over the business management. Considered as the most common form of business organization in India, this type of business poses the risk of personal liability for all financial obligations of the business to the sole proprietor.

Running a sole proprietorship is good for entrepreneurs who have diligently studied and prepared a business plan embarking on a one-man operation. A sole proprietor should be able to multitask.

Partnership

Web sources define partnership as a collective endeavour. In Layman’s terms, it is a joint effort of equally committed persons to undertake and excel in the tasks assigned between, or among them. A partnership is a company incorporated with two or more people with a mutual understanding to share profits or losses of a business. One salient feature enticing start-ups to pick on this type of business is that the partnership need not live the agony of the tax burden of profits or the benefit of losses-profits or losses are “passed through” to partners to report on their individual income tax returns.

Just like in any business type, there are disadvantages. In partnership corporations, each of the partners is personally liable for the company’s financial obligations.

Corporation

A corporation is a company incorporated with autonomy. It is deemed legally separate from the companies or previous companies of its founding incorporators. It has a legal personality to do business in India. Corporations are subjected and mandated to pay taxes to the government hosting the business activity. Relatedly, corporations can also be held liable for their actions.

What’s nice under this business type, incorporators cannot be personally liable, only the corporation. Corporations should also have resources to defray the cost in forming a corporation and the extensive record-keeping that’s required.

Limited Liability Company

Limited Liability Company is a company incorporated as a hybrid form of partnership. This business type gets the preferential benefits of both the corporation and partnership forms of business. Under LLC type of business, profits and losses are transferred/ transmitted to owners tax-free.

Aside from getting a huge chunk of LLC-generated profits, owners are also spared from personal liability.

Choosing a Company to Incorporate

In deciding which type of business to incorporate, it is imperative to consider mathematical aspects with regards to the operational cost, profits and taxes that have to be paid to the government of the country hosting the business – in this case, India.

As such, it is generally recommended to consult a business service provider in India, one with a seal of excellence, efficiency and economy – or simply, 3E Accounting India, with an impeccable track record of delivering results, for less. Or your money back.

Leave a Reply

Your email address will not be published. Required fields are marked *