What is the best business structure in India?

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Many of the aspiring individuals are eager to start their firms in India to explore their capabilities. However, many of them may not be sure which type of entity I should have for Indian business, as there are different business entities. The selection of the type of entity becomes a tedious task when there is a lack of knowledge regarding the type of business. So, you should give proper thought to deciding the type of business entity you can start in India.

If you are thinking too much about which type of entity I should have for Indian business, then the following information given below will help you out in the type’s selection of entity.

Comparison of various business entities in India:

Proprietorship

A proprietorship firm is a business entity in the name of a single person. The management, operations, business, and all the controls of different things are done by that person. The person owns the whole business. There are very few legal formalities to start a proprietorship firm.

Partnership firm under the Partnership Act 1932

In a partnership firm, a business organization is formed by two or more people and divides the profit ratio in a mutually agreeable manner. While registering the business under the Partnership Act, you need to mention the nature of the business, capital invested by each partner, profit ratio sharing agreed by all partners, etc.

Limited Liability Partnership under LLP Act

A limited liability partnership under the LLP Act incorporates a single form of organization as well as a partnership firm. This type of firm is nice for partnership firms to get better profit sharing.

The company under the Companies Act 2013

A company is an entity that has some legal obligations to do certain commercial activities and generate profits. It generally has a common seal of perpetual succession and shares that can be transferred easily.

Society under the Societies Act

According to the Societies Act, a society is created by 7 or more people for any purpose—scientific, literary, charitable, etc. Society can be unregistered or registered.

Branch of a foreign company

A foreign company can easily start their branch in India by just getting approval through the Reserve Bank of India and then registering the branch of a foreign company registration with the ROC. As these branches are considered foreign entities, they are subject to a 40% income tax.

Questions to ask for decision-making

1. What is the expected sales turnover in the business?
Sales turnover presents the total income of a business in a specific period.

2. What is the possibility of liability coming up?
Liabilities are the obligations or financial debts that will arise while doing business. It is necessary to know all the possibilities of liability that a business may come across.

3. Is the requirement for the short term?
Are the requirements of the business on a short-term basis, or will they be on a long-term basis?

4. How many owners of the entity are there?
It is necessary to know the number of owners in the business. Along with it, one must also check the stakes involved for each of the owners of the business.

5. Are people owning and managing separate entities?
It is important to know that the different entities involved in the business are managed and owned by a single owner or by different owners.

6. Taxes applicable
It is very important to find out the taxes applicable to each of the businesses. Proper knowledge of taxes helps in avoiding further problems.

7. Need for retention of earnings
Many of the businesses make nice profits; however, many times they find it difficult to keep the earnings. So, knowing the idea of retention of earnings becomes important to making a firm profitable.

All these important points will surely help in making the proper selection of the type of entity. Considering all the facts, you have to make a firm decision before taking further steps.