Should you start a firm or a company? Take a wise decision while starting a startup

Startup Tips for Beginners

It is important to keep many things in mind while starting a startup. If you want to expand your business across the country, then form a company and take the business forward. Doing business under a firm can cause many problems later. You may have to suffer losses due to this. Before starting any business, it is necessary to give it a form. A form in which it is decided whether you will be the sole owner or will work by forming a company.

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How To Form a Company and Why?

how and why the form of the business should be, after taking information from experts. Whenever we start a startup, the first thing that comes to mind is whether to start the business by forming a firm or a company? Actually, every business has a form under which every person working comes. We can also say that to run the business legally, it is necessary to form it in the form of a firm or a company. Many times we start a business by forming a firm or a company initially but later have to face problems. In such a situation, it is important that all the information related to the firm or company is taken in the beginning so that later problems can be avoided.

Learn from these 2 examples when wrong decisions proved costly

1. Business sank because of the firm

Rohit wanted to start his own startup. His idea was also great. He thought that he would do the business alone and would not share the stake with anyone. He formed a firm for this and started the business. Time passed slowly. Rohit's business started going well. After about 3 years, he thought that now the business should be expanded and spread all over the country. Rohit had some savings. He invested that money in it and expanded the business to 5-6 states. Some time passed. But he did not get a good response in other states.

After a survey, it was found that he would need a huge amount to give momentum to the business. He did not have that amount. He fell into a strange dilemma that if he did not arrange for the money to give momentum to the business, not only would the invested capital be lost, but the business would also be on the verge of closure. In such a situation, Rohit applied for a loan from the bank. When the bank saw his papers, it was found that he runs a firm and is its sole owner. Rohit neither has a company nor any partner. In such a situation, the bank refused to give him a loan. Later he met an expert. The expert advised him to first form a private limited company. Rohit formed the company and bought his firm. After this, he had to start the business again from zero by bearing some losses. Just because he could not form a company, he did not get a loan from the bank and the name of the firm also got out of his hands because someone else had formed a company with that name.

2. Partner Betrayed

Shamita had decided in her school days that she would enter the business world. After completing her MBA, she thought of trying her hand in the food business. After doing all the planning, she formed a partnership firm with two of her college friends and started the business. All three invested whatever capital they had in the business. Initially, they opened an outlet in their own city. In about three years, they opened 12 outlets in five cities. Their annual profit started to be around one crore. During this time, due to some reason, their two most profitable outlets were closed. As soon as they faced a slight setback, one of their partners told the other partners that he wanted to separate from this business. Hearing this, the other two partners got upset. Obviously, when he was with them in the profit, he also had an equal share in the loss. Anyway, he left the business.

The responsibility of the business fell on Shamita and her partner. After some time, two more outlets were shut down. Now funds were needed to run the business. Being a partnership firm, the bank also refused to give a loan. In such a situation, they found a person who was ready to become a partner in their business. But his condition was that he would take 51 percent stake in the business. Giving this stake meant becoming the owner of that person. Shamita and her partner agreed to this, with great difficulty. After some time, that person removed Shamita and her partner from the firm and made other people partners. The partnership business proved very costly for Shamita.

Understand these forms of business

Before starting any business, it is necessary to give it a form, that is, we can say that it is necessary to form a firm or a company. Now the question arises whether business should be done by forming a firm or a company? Business can be done in many ways in the country. 

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Know which firm or company will be better for you

Before starting any business, it is necessary to give it a form, that is, we can say that it is necessary to form a firm or a company. Now the question arises whether business should be done by forming a firm or a company? Business can be done in many ways in the country. Know which firm or company will be better for you.

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What is a Sole Proprietorship Firm?

This is a type of firm which is owned by only one person. This person can also be the one who starts it. This is very popular for those who start a business individually. If a person wants to be the sole owner of his business, then he can start it easily. That person can also give jobs to other people in his business.

Some of the features of Sole Proprietorship are as follows:

• In such a business, the owner is responsible for all kinds of profits, loans and losses.

• The business owner can also start his business in his own name.

For whom is it right?

If a person wants to start his own business alone and has sufficient capital, he can start a business by forming a Sole Proprietorship firm. Also, if he does not want to share his profit, then the firm will be right for him.

For whom it is not right?

A person who wants to start his business on a large scale but does not have sufficient capital should not start a business by forming a firm in Sole Proprietorship. If a loan is required from the bank later for the business, the bank will not give the loan.

Advantages

• The profit made in the business is not distributed among anyone else.
• There is not much hassle in paying tax.
• Starting a business is very easy.
• Registration of business is not required.

Disadvantages

• If the business goes into debt, the responsibility lies with the owner.
• If the business goes into loss, the owner is fully responsible.
• Resources and capital are limited.
• Banks or other institutions do not give loans when the business expands. 

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General Partnership Firm

There is no need for any government registration to do business in General Partnership Firm. Yes, some licenses or permits may be required. You can get a certificate/license issued from the Nagar Palika or Nagar Nigam of the city where you want to start your business by submitting an application. Also, if it is a food-related business, then you will have to get a license issued by FSAAI (fssai.gov.in), shop and establishment license, etc. 

How much time does it take to register General Partnership Firm? 

• Maximum15 days
• Expenses: ₹1000 To 3000

This is a firm in which more than one person starts a business by becoming partners. This type of firm can be started by a minimum of two and a maximum of 20 people. How much partnership each person will have in the business is decided at the beginning. If a person is short of funds or other things, he can fulfill the shortage by making a partner. The features of General Partnership are as follows:

• If there is any loss in the business, all the partners are responsible for it.
• If there is a profit, it is divided among all the partners according to their share.

For whom is it right?

If someone has shortage of funds or space or other such things, then he can start his own business by forming a General Partnership with another partner. In such a case, he will neither need to take a loan from the bank nor will he have to worry about the place.

For whom is it not right?

People who do not want to share their profit in the business with anyone else, they should not start their business with other people by forming a General Partnership firm.

Advantages

• It is very easy to start this type of business.
• There is no need for any kind of registration to start this type of business.
• There is no need for an audit.
• The loss is also divided among the partners, which reduces the burden of loss on oneself.

Disadvantages

• If the partnership share is more, then in case of loss, your loss will be more.
• You do not have full control on business.
• There is a possibility of conflict or argument between the partners.
• Personal property of all the partners can also be sold to repay any loan or debt.

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How to Register a Partnership Firm?

To do business in a partnership firm, you can get a partnership deed made on a stamp paper of Rs 100. Partnership deed can also be called a partnership agreement. It contains all the necessary rules and conditions related to the business like profit/loss, division of liability, inclusion of new partners, rules, salary, procedure for exiting the partnership etc. Later this stamp paper is notarized.

How much time does it take to register Partnership Firm? 

• Maximum 15 days
• Cost: ₹1,100 (stamp duty and some other expenses extra) 

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What is a Limited Liability Partnership (LLP) Firm?

Under LLP, two or more partners form a special agreement and have limited liabilities. LLP is registered as per the rules of the Ministry of Corporate Affairs (MCA). No partner is liable for the liability or debt incurred by any other partner. The losses and debts in the business can be shared among the partners. This type of company can have a minimum of two members or partners. There is no maximum limit. At least one of the partners in the company must be an Indian.

For whom is it right?

If a person wants that the liability of his company should be limited, then he should start an LLP. Not only this, if a person wants to register a company, then LLP can be a good option for him too.

For whom it is not right?

If you want to expand your business and bring an IPO and raise money from the public, then you will not be able to do so by forming an LLP. Not only this, in LLP one partner can make all the other partners liable.

Advantages

• If you wish, you can make the involved partner a partner in the loss and profit and if you wish, you can keep him on salary.
• If the annual turnover of the company is less than 40 lakhs, then there is no need for an audit.
• To repay the loan, the property of the partners cannot be sold.
• To repay the loan, only all the properties that are in the name of the company can be sold.

Disadvantages

• There is a possibility of conflict or debate between the partners.
• It becomes difficult to make many decisions related to the company.
• It becomes difficult to grow the business.
• If the company is in a difficult situation, you can even lose the company.

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How to Register a LLP Company in India?

To register a business in Limited Liability Partnership (LLP), visit the official website of Ministry of Corporate Affairs, mca.gov.in. Here you have to register yourself by going to Sign In/Sign Up written on the top right side. After this, you have to register in LLP.

How long does it take to register an llp in india?

• Maximum 10 days
• Expenses: ₹1000 To 3000

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What is a Private Limited Company?

Forming a Private Limited Company is very popular for running any kind of business. A private limited company is legally an independent entity which is registered with the MCA. By starting a business in this way, you can not only take your business to a larger level but can also take a loan from a bank if needed. Some of the features of a Private Limited Company are as follows:

A Private Limited Company can have a minimum of 2 members and a maximum of 200 members. There can be a minimum of 2 and a maximum of 15 directors.Pvt Ltd Company can have 2 to 200 shareholders.

For whom is it right?

For a person who wants to take his business to every corner of the country and can take a loan from the bank if needed, it is right to do business by forming a private limited company. The name gets registered and government recognition is obtained.

For whom is it not right?

For those who want to keep their business in one city or limited area, the company is of no use to them. Also, those people who have the money to run the business and do not need a partner in any form.

Advantages

• Liability is limited.
• You can take a loan from a bank or other financial institution to expand your business.
•  It is easy to scale the company.
• 100% foreign direct investment (FDI) is allowed.

Disadvantages

• It has a limit on the maximum number of members.
• The No. of shareholders cannot be more than 50.
• Tax benefits are not very high.
• Shares cannot be offered publicly.

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How to register a private limited company?

To register a company, visit the official website of the Ministry of Corporate Affairs, mca.gov.in. Here, you will have to register yourself by going to Sign In/Sign Up on the top right side. After this, click on MCA Services and then click on Company Services. Complete the process mentioned.

How long does it take to register a private limited company?

• Maximum 10 days
• Cost: ₹2500-3000

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Can we convert a proprietorship firm to pvt ltd in India?

No Sole Proprietorship cannot be converted into Private Limited Company Often people think that they will start a business in Sole Proprietorship and later convert it into a Private Limited Company. But know that this is not possible. If a person wants to start a business in Sole Proprietorship and later convert it into a Private Limited Company, then the way is that as soon as he starts Sole Proprietorship, he should apply for registration in Private Limited Company with the same name in which he has formed the firm. When the company is formed, he should keep running it on zero transaction and also keep running his Sole Proprietorship firm. When he feels that now the time has come to convert Sole Proprietorship into a company, then he should sell the Sole Proprietorship to his Private Limited Company and start the company. By the way, the right way is to start the work by forming a company from the very beginning so that the work, brand name etc. remain the same.

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How to start a business in india?

You can start a business by creating an NGO. It is not necessary that a person starts a business by forming a firm or company. If he wants to work without any profit for good change in the society, then he can work as a social entrepreneur by forming an NGO (Non Government Organization). For example, if you want to do business by making pencils for children, then you will make them and sell them in the market. Shopkeepers will sell these pencils to children. In this way you will earn profit. On the contrary, if you want to make pencils and give them to children for free, then it will be social entrepreneurship. For this, the government and different organizations provide financial help. NGO registration is done in 3 ways:

• Trust Act: There are different trust acts for different states. To form any kind of trust, it is necessary to have at least two trustees. To register a trust, an application has to be made in the office of SDM or Registrar of the concerned district. In states where there is no trust act, NGOs can be registered under the Trust Act of 1882.
• Society Act: There are two types of societies. First- State level and second- National level. For the state level, at least 7 people should be a part of the society. All of them should be from the same state in which the society is to be formed. 7 people are also required at the national level but all those 7 people should be from different states. For this, you will have to apply by visiting the website of the Registrar of Societies of the concerned state.
• Company Act : Social entrepreneurship can also be started by forming a company under section 8 Company Act, 2013. It requires at least two people. Registration is done on mca.gov.in. This process is completely online.