What Are the Different Business Structures in India?

Understanding the business category that your company falls under is the first and most crucial aspect that the business owner should know before going ahead with the company registration process.

1. Limited Liability Partnership (LLP)

In the case of a Limited Liability Partnership (LLP) firm, the business is a separate legal entity. Still, the partners’ liabilities are also limited to the amount that is per their contribution.

2. Private Limited Company

The central aspect of a Private Limited Company (PLC) is that the business is a separate legal entity in the eyes of the law. This means that the company is not the same legal entity and is different from its founders, directors and stakeholders (in the form of shareholders). Every individual of the company is thereby regarded as an employee of the company. If your business falls under this category.

3. One Person Company (OPC)

The government introduced this in 2013 to make it easier for one individual to start a company. If there is only one promoter or owner in your company, the person can carry on as the sole proprietor and continue to work under the corporate framework.

4. Public Limited Company (PLC)

A Public Limited Company (PLC) is a business that has offered shares of the company’s stock to the public, and the liability of the general public is limited to the number of shares they hold. Therefore, in case of any business losses, the public cannot be held responsible for any amount that exceeds the share value.

Importance of Choosing the Suitable Business Structures

The business owner and the directors must choose the most appropriate business

structure. Choosing the wrong business structure can significantly impact the finances of the individuals and the company, as every business structure has different compliances.

1. Audit: Registering a company legally opens the business for an accurate audit of the business’ accounts and ledger. To ensure this happens according to the rules, the business stakeholders have to hire auditors and have various accountants on the payroll. Thus, if you choose the wrong business structure, these costs can dent the company’s revenue.

2. Income Tax: Tax on the income earned by the business stakeholders and the business is different for the business as mentioned above structures. For example, a sole proprietor only has to file individual income tax, but a company has to file income tax and tax return with the registrar of companies!

3. Business Expansion: It is vital to choose the correct business structure because certain types of business have rules regarding business expansion. Some companies are more investor-friendly than others thus can attract more investment