BENGALURU: So you are starting up and wondering which business structure to choose for your startup?
Should you directly register as a private limited company or should you run it as a sole proprietor?
Well, our country 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 less charges and can help you take-off quickly. Most traditional shopkeepers fall in this category. With a VAT registration, you can start selling goods on marketplaces or e-commerce websites. However, there is a lot of risk involved, 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 the LLP.
Requiring a minimum of two 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 prefer this format for their business.
Private Limited Company
A private limited company requires a minimum of two 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 Companies Act, 1956. Most startups use Private Limited Company for their business structure.
Single Person Company
Introduced recently, 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 a private limited company.
Now that we know a few basics about registering a startup, the next question arises – when to register?
Most 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 proprietorship or a non-registered entity. Once you reach a stage where you start seeing revenues kicking in, then you can register your startup. I would suggest the same for trademark filing.But we will keep that discussion for another day.
If you have any queries about startups, feel free to write to me at tamhankarrajeev@gmail.com
(The writer is the founder of TBS Planet Augmented Reality Comics and tweets @rajeevtamhankar)