India’s economy has seen a remarkable growth in the recent years. This presented a number of opportunities for entrepreneurs to set up their own businesses.
The Indian Government has started a number of initiatives like “Make in India” to promote businesses to start their manufacturing units in India. To make that happen, the government has also introduced various schemes and funds to make the process smoother.
In this article, we will look at the reasons why India is a favorable destination for business and also into the major business structures one can choose from when setting up a business in the country.
If you are looking forward to starting your own business then this guide is very important for you.
Why India is Good for Doing Business?
India is an attractive destination for businesses and below are some of the main reasons for the same:
Vast Consumer Market: India has a population of over 1.3 billion people which provides a vast consumer base for a wide range of products and services. This offers incredible potential for businesses to scale effectively.
Skilled Workforce: India is known for its pool of skilled professionals, especially in the information technology and engineering sectors. You will find Indians working in the top positions at some of the leading tech companies even in the US and other countries. This readily available talent pool can help businesses grow and innovate.
Regulatory Reforms: The Indian government has been making major efforts to simplify and streamline business regulations. It has made it easier for entrepreneurs to start and operate businesses.
Investment-Friendly Policies: The government has also introduced favorable investment policies to attract foreign investment, contributing to India’s growing economy.
💡Also Read: Various Funding Rounds For Startups
6 Major Business Structures in India
When starting a business in India, it’s important to select the right business structure. The choice of business structure will impact your company’s operations, liability, and taxation.
Here, we’ll provide a brief description of each major business structure in India followed by essential details.
1. Sole Proprietorship
A sole proprietorship is the simplest form of business organization where a single individual owns and manages the business. Below are some other important details for such a business:
- Initial Capital Required: Minimal capital is needed, making it a cost-effective option.
- Members Required: Only one individual is required to establish a sole proprietorship.
- Liability: The owner has unlimited personal liability, meaning personal assets are at risk in case of business debts or legal issues.
- Taxation: The income of the business is treated as the owner’s personal income for taxation purposes
2. One Person Company (OPC)
An OPC is a business structure that allows a single person to form a company, offering limited liability benefits.
- Initial Capital Required: A minimum authorized capital of Rs. 1 lakh is necessary.
- Members Required: Only one person is required to form an OPC.
- Liability: The liability is limited to the extent of the company’s assets, protecting the owner’s personal assets.
- Taxation: Similar to a sole proprietorship, the income is treated as the owner’s personal income.
3. Private Limited Company (PVT LTD):
A private limited company is a legal entity separate from its owners. It offers limited liability and substantial growth potential.
- Initial Capital Required: A minimum paid-up capital of Rs. 1 lakh is mandatory.
- Members Required: A minimum of two members and a maximum of 200 members are allowed.
- Liability: The liability of the members is limited to the extent of their shareholding, safeguarding personal assets.
- Taxation: Private limited companies are taxed separately, with profits subject to corporate tax.
4. Limited Liability Partnership (LLP):
An LLP combines the flexibility of a partnership with the protection of limited liability, making it an attractive option for various businesses.
- Initial Capital Required: There is no minimum capital requirement, making it a cost-effective option.
- Members Required: LLPs must have at least two designated partners.
- Liability: The liability of partners is limited, protecting personal assets.
- Taxation: LLPs are taxed similarly to a partnership, with profits passing through to partners and taxed at their individual tax rates
5. Partnership Firm
A partnership firm is a simple and flexible form of business organization where two or more individuals join together to carry out a business with shared ownership and responsibilities.
- Initial Capital Required: No minimum capital requirement.
- Members Required: Partnerships must have at least two partners and can have up to 20 partners in a regular partnership firm and 100 in a banking firm.
- Liability: Partners have unlimited personal liability.
- Taxation: Partnerships are not taxed as separate entities; income is passed through to partners and taxed at their individual tax rates.
6. Public Limited Company
A public limited company is a separate legal entity owned by shareholders. It offers the opportunity to raise capital through the sale of shares.
- Initial Capital Required: A minimum paid-up capital of Rs. 5 lakhs is needed.
- Members Required: A public limited company must have at least seven shareholders.
- Liability: The liability of members is limited to the extent of their shareholding.
- Taxation: Public limited companies are taxed as separate entities, with corporate tax applicable to profits.
There are various other structures available but we have only listed the major ones. Below is a table summarizing all the important details:
| Business Structure | Description |
|---|---|
| Sole Proprietorship | One person owns and runs the business. |
| One Person Company (OPC) | Single-person company with limited liability. |
| Private Limited Company | Separate legal entity with limited liability |
| Limited Liability Partnership (LLP) | Combines partnership flexibility with limited liability |
| Partnership Firm | Simple structure for two or more partners. |
| Public Limited Company | Separate legal entity owned by shareholders |
💡Also Read: A Complete Guide to Raise Funding For Your Business
The Way Forward
The major business structures in India each offer distinct advantages and disadvantages based on the specific needs and goals of the business.
At KeeVurds, we understand that starting a business can be a complex process. That’s why we are committed to helping aspiring entrepreneurs find the right business ideas and structures to kickstart their entrepreneurial journey.
So, you can browse through our website and find amazing business resources created especially for entrepreneurs like you.
