Sole Proprietorship

Process for incorporation

  • No formal registration required. However, following registrations help at a later stage:
  • Tax registration (GST) (mandatory)
  • Any local/central/state-body registration
  • MSME Registration Online Certificate
  • License under the Shop and Establishment Act/ Factories Act etc. depending on what business it is
  • Udyog Aadhar registration
  • Current bank account on the firm/business name with 2 identities/licenses proof on the firm’s name.

Pros & Cons

  • It’s easy to launch. You have less compliance and would incur less fee for incorporation and compliance.
  • Complete control of the business as you are the sole decision-maker
  • You have unlimited liability including for all credits. There won’t be any differentiation between your personal and business assets.
  • You may find difficulty in raising capital as banks might be reluctant to give you loans

Partnership Firm

Process for incorporation

  • Registration of Partnership Firm is not compulsory technically but it’s very helpful for long-term and hassle-free operations.
  • You need to file an application with the signature of all the partners with the Registrar of firms.
  • Enclose the application with the appropriate fees and following documents: (i) Application for registration as prescribed in form 1 under the Registrations Act, (ii) A duly filled specimen of an affidavit, (iii) Certified true copy of the partnership deed, and (iv) Proof of ownership of the place of business.

Pros & Cons

  • You need to register for PAN and GST.
  • You need to open a current bank account.
  • Though Partnership Firm is very quick to setup, it is not recommended for any long terms business at all because there would be unlimited personal liability, even for wrongs done by other partners

One Person Company

Process for incorporation

  • You need to obtain digital signature certificate (DSC) and Director Identification Number (DIN)
  • You need to register with Ministry of Corporate Affairs (MCA)
  • You need to draft Memorandum of Association (MoA) and Articles of Association (AoA)

Pros & Cons

  • You get the benefit of sole proprietorship as well as that of a company
  • Only nominee and director, no need for another person to form the company.
  • No requirement to host AGM or EGM; No need of filing Cash Flow with the ROC.
  • Financial statements to be only signed by the director.
  • You cannot convert into a public/private company before 2 years or crossing a threshold of 50 lakhs paid-up share capital.
  • You need to inform ROC about every contract entered into.

Limited Liability Partnership

Process for incorporation

  • You need to obtain Digital Signature Certificate (DSC) and Designated Partners Identification Number (DPIN).
  • You need to register with Ministry of Corporate Affairs (MCA)
  • You need to apply for a unique name (Form 1). Once the name is reserved, you need to draft and register your partnership deed (Form 2). Within 14 days of filing Form 2, certificate of incorporation under form 16 will be issued to you.

Pros & Cons

  • There is no mandatory minimum contribution or limit on the maximum number of partners.
  • Lesser registration costs than registering a company.
  • Non-applicability of Dividend Distribution Tax (DDT) – therefore significant tax benefits
  • Compulsory audit not mandatory.
  • Easier exit process.
  • New Companies Act has made LLPs highly lucrative due to flexibility, simplicity, and lack of extensive compliance requirements compared to Pvt Ltd.

Private Limited Company

Process for incorporation

  • You need to obtain Digital Signature Certificate and Director Identification Number (DIN).
  • You need to apply for a unique name and draft Memorandum of Association (MoA) and Articles of Association (AoA)
  • You need to file e-forms with the Registrar of companies and pay RoC fees and stamp duty.

Pros & Cons

  • You need to follow detailed and, at times, complicated process to incorporate.
  • You would have stricter compliances
  • Finally, you would have difficult in winding up the company.

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