How to select the proper form of business between private limited company registration, partnership registration, and proprietor firm Registration.

Different forms of business are suitable for small & medium size businesses.

Proprietor concern :

This is the traditional form of business where the business owner is an individual, where he/she has complete control over the activity of the business & all its functions.

Proprietary firm registration is a suitable form of business when there is a minimum amount of investment required & limited 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.

The proprietary company lacks financial credibility, however, this is only during the initial phase & these can be normalized when the business generates enough turnover & proper accounting and compliance are done.

Partnership firm registration:

       We are recommending partnership firm registration over proprietary concern only if your requirement comes under any of the following.

1. Multiple stakeholders with good understanding & cooperative personal relationship
2. Where your family members also take an active part in business, this will help to save tax compared to the proprietary concern
3. Your business does not require branding
4. Your business doesn’t have legal risks

Private limited company registration:

The private limited company is the most preferred form of business where there is unlimited legal risks & possibility of a loss of money in third-party claims etc. Private limited company registration process protects its owner from unlimited claims where 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,  e.g.: going concern.

Comparison of tax advantages:

                               

	Proprietary concern	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
Financial Credibility	Low	Moderate	High
Branding	Nil	Moderate	good

 

 
Main criteria for choosing the 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 compliances & for obvious reasons your advantage from a private limited company will exceed the cost of maintaining private limited company & tax effects

Important points

• 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

The nature of business plays an important role in selecting a business constitution, for example, if you are going to start a 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, a Private Limited Company is recommended.

Important points

• Trust factor
• Customer perspective on stability

3. Branding

If you want to brand your business with the name, then you should go for a corporate structure.  Most of the business brands opt for private limited companies. You may be the next big brand.

Important points

• Branding
• The rapid growth of the business to its brand value

 4. Requirement of an additional source of funds for business expansion

This is a major problem everyone faces 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’s concerns won’t take care of themselves regarding required financial discipline and other things. While a private limited company is subject to heavy compliance  & funding eligibility by itself, therefore credit scores will be high for the private limited company compared to other forms of business.

5. The number of stakeholders:

When there are a number of stakeholders it is recommended to go for the private limited company rather than a partnership business formation, this avoids most of the problems e.g.: investors may not be individual, day-to-day affairs of the business. In the case of a partnership firm, you can’t restrict any of the partners from taking part in business activities.