Are you planning to set up a new start up ? Plans are ready, idea is very clear, budgets & estimates are drawn, but wait, did you know from where to start ?
Most of the start ups are facing hurdles like finance, registrations issues, etc. due to the reason of incorrect legal status chosen at the time of setting up new venture. In the initial phase we just trying to minimize our costs by choosing proprietorship type which has no registration process, another reason is that it will start our business from the day first by just registering with Udyam Aadhar. Due to short of knowledge no one can predict the issues they need to face in the future & also can’t able to choose the correct status for their business. Some can take help of experts like CAs, Advocates, etc. but more or less all can give suggestions which can save taxes or minimize the legal issues, but no one can help to have long term view considering the growth of the business and nourishments like funds, human resources, ventures & agreements that the business will need to grow in the future.
Considering this we are trying to summaries all the types of business in the comparative manner which can makes the decision easy for the new entrepreneurs.
| Proprietorship Firm | HUF | Partnership Firm | Limited Liability Part. (LLP) | Private Ltd. Company | Public Ltd. Company | |
| REGISTRATION PROCESS | ||||||
| Formation | Not needed | Notarised Deed | Registered or unregistered | Through ROC | Through ROC | Through ROC |
| Regulatory Bodies | – | – | ROF | ROC | ROC | ROC, SEBI, etc. |
| Name | No Guidelines | No Guidelines | No Guidelines | Name should end with LLP | Name should end with Pvt. Ltd. | Name should end with Ltd. |
| Capital Requirement | Not Specified | Not Specified | Not Specified | Not Specified | Minimum 1 Lakh | Minimum 5 Lakhs |
| Legal Entity Status | Not a Separate Legal Entity | Not a Separate Legal Entity | Not a Separate Legal Entity | Separate Legal Entity | Separate Legal Entity | Separate Legal Entity |
| Liability | Unlimited, can extends to the Personal Assets of the Proprietor’s | Unlimited, can extends to the Personal Assets of the HUF | Unlimited, can extends to the Personal Assets of the Partners | Limited to the extent of Capital Contribution | Limited to the extent of Capital Contribution | Limited to the extent of Capital Contribution |
| Proprietorship Firm | HUF | Partnership Firm | Limited Liability Part. (LLP) | Private Ltd. Company | Public Ltd. Company | |
| Minimum No. of members | Only 1 | 2 | 2 | 2 | 2 | 7 |
| Maximum No. of members | Only 1 | Unlimited | 20 | Unlimited | 200 | Unlimited |
| Minimum No. of Directors | — | — | — | 2 | 2 | 3 |
| Independent Directors | Not Required | Not Required | Not Required | Not Required | Not Required | 1/3 |
| Foreign National as Member | Not Required | Not Required | Can not become Partner | Can become Partner | Can become Shareholder | Can become Shareholder |
| Public offering of Shares (IPO) | Not Possible | Not Possible | Not Possible | Not Possible | Not Possible | Possible |
| Proprietorship Firm | HUF | Partnership Firm | Limited Liability Part. (LLP) | Private Ltd. Company | Public Ltd. Company | |
| COMPLIANCES | ||||||
| Govt. Compliances | NO YEARLY COMPLIANCES | NO YEARLY COMPLIANCES | Compliances of ROF only, that also only at the time of formation, addition of partner, retirement of partner & dissolution of firm. NO YEARLY COMPLIANCES | Compliances of ROC on Formation & Liquidation in addition to that ANNUAL FILING IS COMPULSORY | Compliances of ROC on Formation & Liquidation in addition to that ANNUAL FILING IS COMPULSORY | Compliances of ROC on Formation & Liquidation in addition to that Quarterly Minutes of Meeting Filing & ANNUAL FILING IS COMPULSORY |
| No Statutory Audit only Tax Audit | No Statutory Audit only Tax Audit | No Statutory Audit only Tax Audit | No Statutory Audit only Tax Audit | Statutory Audit (Irrespective of Turnover) and Tax Audit | Statutory Audit (Irrespective of Turnover) and Tax Audit | |
| If Listed then Quarterly filing & SEBI Compliances | ||||||
| Cost of Compliances (Approximately) | 0 | 0 | 0 | 10,000 | 75,000 | 1,50,000 |
| Proprietorship Firm | HUF | Partnership Firm | Limited Liability Part. (LLP) | Private Ltd. Company | Public Ltd. Company | |
| Winding Up / Dissolution | At Will | At Will | At Will | Legal Formalities | Legal Formalities | Legal Formalities |
| Audit, Remuneration & Nomination Committee | Not Applicable | Not Applicable | Not Applicable | Not Applicable | Not Applicable | Threshold Limits – Capital 10Cr OR Turnover 100Cr OR Loans & Deposits 50Cr |
| COST BENEFIT ANALYSIS | ||||||
| Bankers’ View | Creditworthiness depends on goodwill and credit worthiness of the proprietor | Creditworthiness depends on goodwill and credit worthiness of the HUF Members | Creditworthiness depends on goodwill and credit worthiness of the partners | Perception is higher compared to that of a partnership but lesser than a company | High creditworthiness, due to stringent compliances and disclosures required | High creditworthiness, due to stringent compliances and disclosures required |
| Loan to Directors / Partners | Possible | Possible | Possible | Possible | Not Possible | Not Possible |
| Equity Dilution | No | No | No | No | No | Yes |
| Sharing of Profit | 100% | All HUF Members | In PSR | In PSR | By Dividend | By Dividend |
| DDT Applicable | No | No | No | No | Yes | Yes |
| Income Tax Rate | Slab Rates | Slab Rates | 30% | 30% | 25% Upto 400 Cr | 25% Upto 400 Cr |
Conclusion – Facts & Figures mentioned above may changed as per the amendments made by the regulating authorities. For any questions related to this or if anyone required help in setup new start ups then contact to us.
Great Article liked the concept & will definitely approach for the my new start-up.