How to select proper form of business between private limited company registration, partnership registration and proprietor firm Registration.
Different forms of business suitable for small & medium size business.
Proprietor concern :
This is the traditional form of business where the business owner is individual, he/she Has the complete rights of the activity of the business & all the functions.
Proprietary firm registration is best suitable when there is a minimum amount of investment & limited on the level of business growth.
For example: if a person chooses to register a private limited company for a supermarket located at only one location it will be wrong in terms of cost & disadvantages.
Proprietary company lacks in financial credibility, however this is only during initial phase & these can be normalized when business generate enough turnover & proper accounting and compliance is done.
Partnership firm registration:
We are recommending partnership firm registration over proprietary concern only if your requirement comes under any of the following.
- Multiple stakes holder with good understanding & cooperative personal relationship
- Where your family members also take active business this will help to save tax compared to proprietary concern
- Your business does not require branding
- Your business doesn’t have legal risks
Private limited company registration:
The private limited company is the most prefered form of business where there is unlimited legal risks & possibility of loss of money in third-party claims etc.. private limited company registration process protects its owner from unlimited claims were directors conduct is proper. Apart from this advantage private limited company Incorporation gives good credibility and business perspective. For private limited name availability you can check here
We have avoided technical advantages deliberately eg: going concern
Comparison of tax advantages:
|Partnership firm||Private limited company|
|GST||Threshold Exemption Available||Threshold Exemption Available||Threshold Exemption Available|
|Income tax||basic exemption limit available||Not available||Not available|
|TDS provision applicable||Only for tax audit cases||Mandatory||Mandatory|
Main criteria for choosing proper form of business
1.Amount of investment
In case your business requires huge investment then it is appropriate to choose private limited Company registration because it is proper form a business subject to Multiple compliance & for obvious reasons your advantage from private limited company will exceed cost of maintaining private limited company & tax effects
- Number of stakeholders
- Return on investment
2.Nature of business:
It is complex to explain in a small article, however, I tried my best to explain
Nature of business plays an important role in selecting business constitution for example if you are going to start software company then it is wise to recommend registration of a private limited company. To Make it simple where your nature of business requires trust factor as primary criteria Private Limited Company is Recommended.
- Trust factor
- Customer perspective on stability
If you want to brand your business with the name, then you should go for corporate structure. Most of the business brands opt for the private limited company. You may be next big brand
- Rapid growth of business by its brand value
4.Requirement of additional source of funds for business expansion
This is a major problem everyone faces is where there is an opportunity for expansion proprietor concern often suffers from lack of funds & they also face trust factor due to the lowest level of compliance. most of the proprietor concern won’t take care of further by its self while private limited company is subject to heavy complains & funding eligibility by itself, therefore credit score will be high for the private limited company compared to other forms of business.
5.The number of stakeholders:
When there is the number of stakeholders it is recommended to go for private limited company rather than partnership business formation, this avoids most of the problems eg: investor may not individual, day to day affairs of the business. In case of partnership firm, you can’t restrict any of the partners from taking part in business activities.