Various forms of business are in existence at present. Which is ideal for you? Some basic facts need to be known before launching your own venture.

1) Sole proprietorship

The oldest form of business is sole proprietorship, which has been in existence since time immemorial. As only one owner is involved, starting and operating the business is easy. Moreover, there will be no management issues. There is no need to share the profit too.

Sole proprietorship is suitable for small and medium businesses. Only few laws are applicable and there are many tax benefits also.

However, sole proprietorship has many demerits. The main one is that it can attract unlimited liability. The owner cannot make the business grow beyond a point as only one person is involved.

The owner’s property may be attached in case the business fails and there are losses. In other words, the business is connected to the proprietor’s personal assets. Putting it another way, the assets of the business are limited.

Another disadvantage is that the government considers sole proprietorship as an individual and the tax rate will be high. Moreover, the acceptability for sole proprietorship is not very high in other countries.

A major drawback of sole proprietorship is that if the owners passes away or is unable to carry out the business, there would be no one else to shoulder the responsibilities. In fact, in case of death of the proprietor, the heirs may need to present a legal heirship certificate to continue the business. To avoid this situation, the sole proprietor should prepare a will.

2) Partnership

Another old form of business, partnership also is easy to start. When two persons are involved, a higher capital is available. In addition, better decision-making is possible. The workload of each partner will be lesser than a sole proprietor. There is also reduced risk in a partnership business. More brains come into play in a partnership. There is more innovation as a result of this. Time is saved as work is shared. The decision-making is of a higher degree of efficiency. Partnership business is a good option if there is harmony between partners.

However, partnership business has many demerits like sole proprietorship. One of the biggest drawbacks of partnership business is that no business secret can be kept. In case one partner leaves, the business may be affected. There is unlimited liability in partnership ventures also. Each of the partners will not have contacts with all the clients.

If a conflict develops between the partners, the business may suffer. A portion of the assets is likely to be lost if one partner leaves the venture or dies.

To tackle such issues, the Government of India has introduced a new partnership method called ‘Limited Liability Partnership’.

3) Limited Liability Partnership

Under this form of business, only the money invested by the partners would be affected. Their other assets will not be harmed in case of a setback. That indeed is the biggest benefit of Limited Liability Partnership (LLP).

LLP is suitable for small businesses, startups and other ventures that are uncertain about their success. The government of India introduced this business form as it is more secure than an ordinary partnership.

An advantage of LLP is that no compulsory audit is required. Similarly, apart from the money invested in the particular business, the other assets of the partners will not be affected.

Another benefit of LLP is that there are fewer complications. Moreover, there would be perpetual succession. Each LLP is eligible for a CIBIL score. Closing the business is easy too.

However, there are some demerits for LLP firms. Even though easy to register, LLP faces the issue of limited capital. One disadvantage is that the penalty for not submitting accounts is high compared to other companies. Similarly, LLP companies cannot go in for an IPO. Other drawbacks include neither foreign capital nor private equity can be accepted.

Difficulties may be posed by the rule that transfer of ownership in LLP companies can be done only with the consent of all partners. There are more demerits. All states in India have not recognized LLP and this type of business is unknown to international operators. This makes attracting angel funds from abroad an uphill task.

4) OPC

In many countries abroad, One-Person Companies (OPCs) are favoured over sole proprietorship. Here, all the shares are controlled by one person. The main advantage of OPC is that operating it is easier than other businesses. This means there are no annual general meetings or board meetings. Even when it is a separate legal entity, one person controls everything in the company.

Naturally, there are less legal complications. The only condition is that a nominee is needed. An OPC does not find it difficult to get a bank loan or other funding. Moreover, the issue of debentures also does not arise.

Another major benefit is that even if the owner passes away, the company survives.

Still, an OPC has some demerits. They include a higher amount for incorporation, no non-banking operations can be carried out and that as only one person is running the firm, a single brain will be involved. Moreover, an OPC cannot go for high turnover and no non-resident Indians can invest in the company.

5) Private limited company

This kind of company is ideal when there is 100 % certainty about growth. There is no big board of directors in a private limited company. But to start such a firm, PAN (Permanent account number), DIN (Director identification number) and TAN (Tax deduction and collection account number) have to be obtained. A digital signature also may be needed.

Other requirements include Articles of Association, Memorandum of Association, Initial Promoters’ Agreements and Arbitration and Consolation Clause.

Legal validity of a private limited company is ensured and it has a district ownership status. In fact, even two persons can start a private limited company. The largest number of people who can be involved is 200. They can belong to any state in India. But if at least 51% of the shares are held by the founders, the company will be safe in their hands.

There are numerous advantages for a private limited company. One is that funds will be available from around the world. There are big funding agencies based in Canada and the Arab world and investments from them can be sought. Venture funds too can be obtained from abroad.

The private limited companies enjoy perpetual succession and the management of the firm is flexible. As a result, it attracts more trust than other kinds of businesses. Incidentally, most banks are companies.

A private limited firm can grow to any size, to that of even Reliance or Tata.

A company is the main form of business all over the world. In the United States, it is referred to as LLC - Limited Liability Corporation.

However, while in western countries, less than 100 US Dollars need to be spent for starting a company, the procedures are more expensive in India. In other words, the registration process is costly in our country.

Another demerit of private limited companies is that if a firm ends up in failure, the same founder cannot start another concern.

Even though the registration process is difficult as several procedures are involved, it is not impossible.

A private limited company can have 2-200 shareholders. But if more people are to be involved, it should become a public limited company.

6) Public Limited Company

Before a private limited company goes for an IPO (Initial public offering), it has to present its track record. Another requirement of a public limited company is statutory audit; the accounts have to be presented to the government every year.

One peculiarity of such firms is that the promoters can only choose the name of the company from a list suggested by the government authority. However, they can decide the brand name.

The cost of registering a public limited company is around Rs 50,000. Another Rs 50,000 has to be spent to meet the statutory obligations. All such procedures attract the trust of the government and the public for this form of business. Moreover, a company can provide a protective environment to the clients, staff as well as management.

The main drawback of a public limited company is that winding up the firm is difficult as well as expensive. For a small business, transformation from being a private limited company to a public entity is painful. When the company is big, it has to depend on a company secretary, auditor and accounting firms. Employees too would have to be appointed. Another factor that is crucial is that support of the community has to be ensured while running such a business.

Considering these aspects, much care has to be employed before launching a public limited company. Study at least 100 businesses in detail and identify the single most suitable one for you. For this, conduct research and speak to experts. The effort would be worth it as public limited companies have the potential to grow to national and even international levels. So, inspiring children to be entrepreneurs who launch their own companies is a good idea.

Global trade does not mean just buying an item from abroad and selling it in India. Making a purchase in Mexico and selling it in Turkey is also international business. Such business-to-business deals can be carried out by public limited companies. In fact, such activities contribute to the national cause. They support the people of the country in many ways too.