Choose your startup structure

If you are starting up, this is often the biggest question you come across.

Published: 14th February 2019 01:40 AM  |   Last Updated: 14th February 2019 01:40 AM   |  A+A-

Startups

Image used for representational purpose only

Express News Service

KOCHI: If you are starting up, this is often the biggest question you come across. Which company structure should you choose? Should you directly register as a private limited company or should you run it as a sole proprietor? India has four basic business structures to kickstart your startup and you can choose whichever suits your model the best. I suggest you talk to your tax and legal consultant before taking the final decision. But this article should help you get a brief overview:

Sole Proprietorship
Generally, this is the easiest model to begin a startup. Having less stringent rules, the proprietorship format is easier to register, requires lesser charges and can help you get off-ground. Most traditional shopkeepers fall in this category. With a VAT registration, you can start selling goods on marketplaces or e-commerce websites. However, this one fully risks the owners as the entire liability lies on the proprietor. And hence you will not be able to raise funds in this format.

Limited Liability Partnership
In this structure, the liability of partners is limited to the extent of their contribution towards LLP. Requiring a minimum of 2 partners, this format limits the liability of partners and hence is easier to take loans as the structure is more compliant. Many real estate builders use this structure for their business.

Private Limited Company
A private limited company requires a minimum of 2 directors and follows all stringent norms and compliances. This is the most advisable model if you are looking to raise VC funds. The company is governed and regulated under the Companies Act, 1956. Most startups use Private Limited Company as their business structure.

Single Person Company
Recently introduced, this business structure aims to help single founders set up their own company with compliances as a regular company. However, if you are looking to raise VC funds, we still suggest that a private limited company structure is more suitable.So now that we know some basics about registering a startup, the next question comes – when to register your startup? Should you directly go for LLP or Pvt Ltd Company registration? My suggestion is no. Most of your startups will typically be burning money in the first few months of its operations. And if that is the case, maybe run it as a proprietor or non-registered entity.

Once you reach a stage where you can at least start seeing revenues kicking in, then surely you can go for registering your startup. The same advice I would also suggest for trademark filing. But we will keep that discussion for some other day.Rajeev Tamhankar is IIT Roorkee Silver Medalist and Founder, Founder of TBS Planet Comics, Ex-Flipkart, Xiaomi employee.(The views expressed by the author are his own)

Stay up to date on all the latest Kochi news with The New Indian Express App. Download now
(Get the news that matters from New Indian Express on WhatsApp. Click this link and hit 'Click to Subscribe'. Follow the instructions after that.)

Comments(1)

Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

  • Praveen

    Most of the legal professionals do what's more beneficial to them unless it should be your father's friend uncle. Now
    7 months ago reply
flipboard facebook twitter whatsapp