In the modern trend of growing industrialization, commencement of new business setup has increased to a great extent. However an entrepreneur has to overcome a series of legal and procedural hurdles in incorporating a new firm involving a substantial quantum of cost and time.
In the present business horizon persisting in Kolkata, an entrepreneur can establish a business structure in any of the 5 common patterns viz. a proprietorship firm, a partnership firm, a limited liability partnership firm, a one person company or a private limited company. We can give an insight to the relevance and suitability of each of the above mentioned business ventures.
- Proprietorship Firm: The smallest and oldest form of business structure in India. It involves less capital, less risk and provides greater incentive to work, maximum control over resources and higher degree of flexibility. It generally caters to self employed individuals, professionals on a small scale and shop owners. However the owner of this concern has to bear unlimited liability, suffer the losses and moreover such a firm does not have a perpetual life. In-spite of several disadvantages, it is very popular in the Indian business context. Tax liability for proprietorship firm is quite simplified.
- Partnership Firm: A complicated version of proprietorship firm, a partnership firm offers greater capital, managerial skills and expertise. It provides the premises for sharing of liability and losses accruing to the firm amongst the partners. It is suitable for medium sized business owners and small industries whether on wholesale or on retail basis. It also have a wide coverage in the service sector viz. real estates, professional firms etc. The capital and administrative structure is governed by the partnership deed formed in the context of the legal provisions of the Partnership Act. A partnership firm is formed with at least 2 partners and at most 20 partners. Thus it results in dilution of control over resources. Moreover a partnership firm is an unregistered entity, therefore devoid of certain benefits. Moreover similar to a proprietorship concern, it has the burden of unlimited liability over the partners and also the existence of the firm comes to an end in the event of either death or resignation or bankruptcy of any of the partners.
- Limited Liability Partnership (LLP): This is a new concept of business concern in the Indian context. It bears certain features of a partnership firm on one hand by enabling the partners to manage the business affairs directly. On the other hand it exhibits the elements of a corporate entity by allowing the partners to bear the liability of the firm the extent of their capital in the Firm. The tax burden of the LLP is somewhat similar to that of the partnership firms. It gets dissolved either voluntarily or by the Tribunal.
- One Person Company (OPC): This is a new form of business venture introduced by the Companies Act 2013. It allows only one person being a shareholder in a private limited company. It allows absolute control in the profits, resources and management in the affairs of the company. However it also enables the director to enjoy the benefit of limited liability. It is suitable for a person who can provide the entire amount of capital for the formation of the company.
- Private Limited Company: This is the company form of business. The commencement requires at least 2 directors to form a business. The concept of limited liability is applicable. The owners are liable to the debts only to the extent of their contribution of finance. The restriction of the number of members enables the retention of control. The shares of a private limited company are not traded freely in the open market. On the other hand there is clear segregation of ownership from the management of the company. The perpetual existence of the company is not hampered on the occurrence of death or insolvency of any of the director or owner. It is a very popular form of business in the Indian scenario. It has a wide range of acceptance among those who establish business among the family members, relatives. The tax burden is similar to that of a corporate entity.
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