Company Formation

Company Formation

The most common and simplest form of business is a sole proprietorship. Many small businesses operating in the India are sole proprietorships. An individual proprietor owns and manages the business and is responsible for all business transactions. The owner is also personally responsible for all debts and liabilities incurred by the business.But sole proprietorship business is not a legal entity; directly refer to its owner. Sole proprietorship business can operate under the name of its owner or any fictitious name. Start a sole proprietorship business need register the business owner name with local authority, its ready for business activities. A disadvantage, however, is that the owner of a sole proprietorship remains personally liable for all the business's debts.

Advantage of Sole Proprietorship Business:
-A sole proprietor has complete control and decision-making power over the business.
-No corporate tax Liability
-Minimal legal cost to forming a sole proprietorship
-Few formal business requirements.

Disadvantages of Sole Proprietorship Business:
-The sole proprietor of the business can be held personally liable for the debts and obligations of the business.
-All responsibilities and business decisions fall on the shoulders of the sole proprietor.
-Investors won't usually invest in sole proprietorship business.

The most common and simplest form of business is a sole proprietorship. Many small businesses operating in the India are sole proprietorships. An individual proprietor owns and manages the business and is responsible for all business transactions. The owner is also personally responsible for all debts and liabilities incurred by the business.

Partnership firms in India are governed by the Indian Partnership Act, 1932. As per the section 4 of the Indian Partnership Act. Partnership is the relation between the persons who have agreed to share of the all business profit and loss.
Two or more persons who have entered into partnership with each other to carry on a business are individually called PARTNERS collectively called as a Partnership Firm; partnership firm is not a separate legal entity. It is merely a collective name given to the individuals composing it. A firm cannot possess property or employee servants; neither can it be a debtor or creditor. It is only for the sake of convenience that in commercial usage likes "property of firm", "employee of firm", and "suit against the firm" so on are used, but in the eyes of the Indian law that simply means "Property of the partners", and a suit against the partners of the firm.

Advantages of Partnership Firm:
-Registration is not compulsory in the case of Partnership firm. It can be formed without any legal formality and expenses. Thus they are simple and economical to form and operate.
-Business of a partnership firm is very well managed by all the partners as they take interest in the daily affairs of business because of the ownership, profit and control.
-Due the more number of members the partnership firm has larger resources for the business operations as compared to sole proprietorship.
-Due to the limited number of partners there is flexibility in the operations of business as the partners can amend any objectives or change any operations any time by mutual consent.
-In partnership every partner bears the risks individually as it is easier compared to sole proprietorship.

Disadvantages of partnership Firm:
- Liability of every partner in a partnership firm is unlimited as any of the partners may be called upon to pay all the debts even from its personal properties. A single wrong decision by one partner can lead other partners in heavy losses and liabilities.
- According partnership agreement every partner has equal rights. Some situations might occur in which one or the other partner will not agree on the same thing which will cause difference of opinion resulting mistrust and disharmony among the partners.
- A partnership firm does not exist for an indefinite period of time. The death, insolvency or lunacy of a partner may lead to dissolution of the partnership firm.
- Due to the restriction on the maximum number of members, a limited amount of capital can be raised.
- A partnership firm does not have a legal status like a Company.

Private Limited Company is the most prevalent and popular type of corporate legal entity in India. Private limited company registration is governed by the Companies Act, 2013 and the Companies Incorporation Rules, 2014. To register a private limited company, a minimum of two shareholders and two directors are required. A natural person can be both a director and shareholder, while a corporate legal entity can only be a shareholder. Further, foreign nationals, foreign corporate entities or NRIs are allowed to be Directors and/or Shareholders of a Company, making it the preferred choice of entity for foreign promoters. It is the most popular legal structure for business and allows outside funding and also employee stock options. More stringent compliance measures to be followed, hence more credibility. The company needs to appoint an auditor and the audited financial statements are to be submitted to MCA annually. The company is eligible to issue debentures and convertible debentures.
A Private Limited Company, quite simply is a company whose liability is limited. Thatís the short version. The longer version is that a Private Limited Company is a type of company which when set-up allows an entrepreneur to keep their own assets and finances separate from the business itself. This means that people who have invested in the business (the shareholders) are only responsible for any company debts up-to the amount that they have invested and no more. It is therefore a good way for a business to get investment without risk to a personal wealth. Essentially a Private Limited Company is seen as an entity in its own right, which can be subject to legal action. As a separate body, a private limited company can even be the director of another company.

Advantages of Private Limited Company:
- A private limited company is that the financial liability of shareholders is limited to their shares. Therefore, if a private limited company was in financial trouble and had to close, shareholders would not risk losing their personal assets. Although, perpetrating a fraud related to the private limited company would negate an owner's limited liability protection.
- A private limited company is its continued existence, even after the owner dies or leaves the business. Private limited companies are incorporated. When a business incorporates, it becomes an independent legal entity, meaning it is able to sue or own assets separate from the company owner. A private limited company differs from a sole proprietorship in that the latter is owned by a single individual who is personally responsible for the company's business debts and essential to its continued existence.
- The restriction placed on the sale or transfer of shares may be considered an advantage or disadvantage, depending on your outlook. It is an advantage to some shareholders because shareholders who want to sell shares cannot sell them to outside buyers. Shareholders must also agree to the sale or transfer of shares; therefore, the risk of hostile takeovers is low. The restriction placed on the sale of shares is a disadvantage because shareholders have limited options for liquidating shares