Starting a business is a significant milestone for an entrepreneur. India has recognized at least 14,000 new companies. This is a 20-fold increase in only five years.

But choosing the proper business structure is crucial. And selecting the right structure will depend on your business goals, financing, and tax objectives.

So let’s explore some business structure types in detail. Moreover, let’s discuss their advantages and disadvantages to help you choose the most suited business structure for your business.

Limited Liability Partnership (LLP)

LLPs are an ideal legal structure for small and medium-sized businesses. Plus, it suits partnerships with many owners who want liability protection. But it might not serve businesses needing large capital or complex legal requirements.

Partners in a limited liability partnership (LLP) company structure have no personal liability beyond their agreed-upon contribution. As a result, partners’ personal assets are not at risk if the business faces legal or financial issues.

Advantages:

• LLP partners can manage the business according to their own rules.
• Partners have the flexibility to transfer ownership or exit the partnership.
• The partners pay taxes on their profit share. Rather than the partnership paying taxes on its profits.
• An LLP legal structure does not need a minimum capital and a maximum number of partners.
• A partner’s contribution may include tangible, moveable, immovable, or intangible property.
• LLP registration is less expensive than other companies.

Disadvantages:

• LLPs are a newer business structure. So, some legal aspects are still evolving. As a result, there could be confusion and uncertainty in some situations.
• LLPs are not allowed to issue shares to the public. So, they cannot raise capital through an initial public offering. This can limit the funding amount available for the business.

Private Limited Company (PLC)

A small group of people (friends or family members) own a Private Limited Company. Moreover, the company’s shares are not available to the public. Also, the ownership in this business structure is restricted to a small group of shareholders.

It is ideal for small and medium-sized businesses. Moreover, it suits entrepreneurs who want liability protection and easier capital raising. Companies looking to expand their operations may need more significant investment for growth. So, this business structure may suit them too.

Advantages:

• These companies can raise money through the sale of shares to their shareholders.
• They allow shareholders to appoint directors and manage the company’s affairs. Also, this enables shareholders to have control over the company’s management.
• A private limited company continues to exist until it is formally disbanded.

Disadvantages:

• They need to follow more legal and regulatory requirements. For example, maintaining proper records, annual filings, and regular financial audits.
• The registration and maintenance costs of these companies are higher.
• Its AOA prohibits the transfer of shares. So, the company cannot offer these shares on public markets.

Public Limited Company

In a public limited company, the company’s shares can be traded publicly on a stock exchange. A Public Limited Company is suitable for large businesses or companies planning to go public.

Advantages:

• It can raise capital by issuing shares to the public.
• It can have an unlimited number of shareholders. This allows for greater flexibility in ownership.
• Shares of these companies are transferable among their participants and the stock exchange market.
• These companies have transparent structures. So, banks and other financial institutions are more eager to offer financial support to a Public Limited Company.

Disadvantages:

• Public Limited Companies are subject to more stringent legal compliance requirements. For example, regular financial reporting, the appointment of auditors, and corporate governance standards.
• Registering and maintaining these companies is more complex and expensive. For example, expenses of registering the company and shareholder communications and meetings.

One Person Company (OPC)

A One Person Company (OPC) allows a single person to run a business. It doesn’t need partners or shareholders. A single individual can register only one OPC until the OPC loses its registration. So, an OPC doesn’t suit serial business owners.

An OPC is an ideal business structure for individuals wanting to start alone. Also, it suits professionals who want to limit their liability.

An OPC goes by different names in different geographies. For instance, it is known as a Single-member company in the UK and a Sole Proprietorship in Canada and the US.

Advantages:

• There is only one owner. So, decision-making is faster and more streamlined.
• An OPC has its own legal standing and can enter into contracts, sue, or be sued in its own name.
• Suppose a shareholder demises or incapacitates. Then, the stakeholder can select a person to assume business control.
• Auditing finances and submitting the yearly filings don’t need a company secretary’s signature. So, it is simple with the director’s signature.

Disadvantages:

• There are restrictions on the number of directors and members an OPC can have. So, there is less scope for expansion in an OPC.
• An OPC cannot issue shares or take on equity partners. So, the options for raising capital are fewer.

Wrapping up

Each business structure has its own set of advantages and disadvantages. And it is important to choose the one that best suits your business needs and goals. Consider factors such as:

• the number of owners
• liability protection
• tax implications
• capital requirements
• management structure
• compliance requirements

If you have questions about business setups and structures, you can seek guidance from GJM & Co. Our experienced professionals can assist with businesses, enabling you to understand them better.

Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.