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Types of Business For Startups

For start-ups in India, there are several categories of businesses, such as Pvt Ltd company, LLP, OPC, Partnership, and Proprietorship Firms. Call us to discuss which one is best suitable for you!

Type of Business based on the Business Activity

The proposed set of activities plays a vital role in deciding on the type that is most appropriate to start business in India. E.g businesses involved in activities of social welfare have completely different objectives compared to businesses involved in sale of products and services for profits, and hence must be registered as different types. The table below mentions the most appropriate types of business based on the activities they are involved in.

Risk & Liability of a Business Structure

We advise considering the risk or possible liability and then deciding the type with which we can start business in India. It is but obvious that a small retail shop has negligible risk or liability in comparison to a business that is involved in foreign trade or dealing in hazardous chemicals. From the perspective of Risk and Liability, business structure may be divided into two categories. The first category is where the owner’s liability is limited to the capital that he has subscribed and second category is where the liability of the owners is unlimited.
 
Concept of Limited Liability: For structures where the businesses and the owners are considered separate legal entities, the owners enjoy protection against the losses and liabilities of the business. Their liability as the owners in a limited liability business is restricted to the share capital that they have subscribed.
 
We Can categorise businesses based on the liability of their owners:
 

Unlimited Liability to Owners:

  • Proprietorship
  • Partnership
  • HUF

Limited Liability to Owners:

  • Company
  • OPC
  • LLP

Control and Management in Specific Business Type

Business structure like proprietorships and Partnership Firms, have no separation between ownership and management. The sole owner of a proprietorship is responsible for its control and management, whereas each partner in a partnership firm or as decided in the Partnership Deed, is responsible for the management and control of the firm. However, structures like a company or an LLP have separation between ownership and management. The table below categorises each type of business according to the separation between its ownership and management. 

S.NoBusiness TypeOwnershipManagement Control
1
Proprietorship
A single Individual known as the proprietor owns the proprietorship business. The proprietor alone invests all the capital and is entitled to the whole of the profits.
There is no separation between the ownership and the management in a proprietorship business. The proprietor controls and manages the business himself.
2
Partnership
In partnership, the partners collectively own the firm on the basis of their capital sharing ratio.
All the partners control and manage the firm, as mentioned in the terms of the partnership deed.
3
LLP
In an LLP, the partners collectively share the ownership on the basis of their capital sharing ratio.
The responsibility of management and control of the LLP resides with its designated partners.
4
OPC
In OPC a single person, known as its shareholder, is the only owner of the OPC
The management and control of the OPC is the responsibility of its directors.
5
Private Limited
Shareholders own a private limited company in the ratio of their subscribed capital
The board of directors of the company is responsible for its control and management.

Formation Cost of Various Business Structures

The cost of setting up a startup depends on the professional fee, the government fee, stamp duty and taxes involved. Several factors affect the determination of government fee, such as the initial authorised capital, location of the registered office address, and the number of promoters of the business. Our consultants are just a click away to assist you start business from beginning to the end.

Cost of Compliances of Several Business Structures

The cost of compliance varies from one business type to another based on their specific compliance requirements. The regular costs of compliance like accounting, GST, TDS, Advance Payment of Taxes, Payroll Processing, etc, is almost the same in every business type. However, there are differences in the overall costs majorly because of the annual filing of returns to the ROC. The table below mentions the applicability of annual filing for different business structures in India. You can choose and start business with the structure which requires the least compliances to be fulfilled.

Taxation of Various Business Forms

The Income Tax is levied differently on different types of businesses, so we advise you to obtain a proper consultation and refer to the updated laws for the payment of taxes and filing of tax returns. Given below is a brief discussion on the taxability of the income of the common business structure in India. Considering this parameter, you can accurately decide the structure that you want to start business with.