I have enough experience to talk about the need for a legal company when you start a small business. Because I was in all positions of making companies and doing businesses from my teenage. I guided more than 10K people to form companies to this date. It may help you also to start a small business.
Every business owner needs a legal company to start a small business that will help them export-ready from the beginning. Most small business owners are running the business through savings accounts. This shows the credibility of their business, which will never help them grow in the future.
How to start a small business?
When planning to start a small business in India, most of them are not considering forming a legal company. They may think about furniture, office space, staff. But not planning to create a legal company.
The company is not Buildings, Hoardings, Furniture and signage. A Legal Company in the form set of registered documents.
Mostly 90% of small businesses and startups fail within a year. Not understanding the proper regulations is also one of the reasons for a company to fail.
So If you are not forming the right legal company for your particular business, It will personally affect you in future if the business fails.
Do you want to pledge your home, car and other assets? How about the assets owned by your spouse or their salary from the job if they are in? Selecting the right legal company for your business prevents such dangers from occurring.
More importantly, you can’t sleep at night knowing that the worst thing that can happen is losing your investment in the business.
Legal Company Structures to Start a Small Business in India
Many legal company structure options exist in modern business life. I am listing one by one below. I will classify these companies into two types. Simple Companies and Corporate Companies
To Start a Small Business through Simple Companies
Simple Companies is from my Vocabulary. The business world may not accept that. But I am Classifying these companies y their Structures. Proprietorship and Partnership Companies are
Proprietorship Company
Just an MSME Certificate, PAN card, and a Current account can be enough to run a proprietorship company. Mostly it is a single human company. You may have employees or more than 100 crores turnover in this company, but this company depends on you only.
As I told you earlier, You are the one answerable if anything goes wrong. The company will become a personal liability to you. As I told you earlier, it may also affect your spouse and common assets.
Partnership Company
Indian Partnership 1932 Act is helping us to form a partnership Company. For that, we have to register in the registrar Office of the State government. Where you have to split your responsibility, shares, and regulations.
In my opinion, it is better not to create any company and be in-home than be in a partnership company. Unfortunately, many business owners form partnership Firms and don’t even know it. This occurs when they go into business with another person.
In some cases, while starting with a glad mindset, they may sign all agreements in future, they may worry when the problem comes.
Partnerships are dangerous for one primary reason:
- A partnership company does not provide any protection from liability and, in many ways, invites personal liability.
- This simply means that all the partners contribute to the administration and running of the partnership business. This classification can have grisly results.
- Each partner is jointly liable for the debts of any other partner arising from the business. Though the other person not involed any mistakes.
But still, people form partnership companies. But my suggestion on Partnership companies is unnecessary. Stay away from them whenever possible.
To Start a Small business through Corporate Companies
Corporations come in two primary forms, Private Limited, Public Limited, and LLP.
These types of companies act as a shield between the activities of the business and your personal assets. Even though you become bankrupt, your assets will be safe.
Private Limited Company
Private limited companies consist minimum of two directors, and a maximum of 200 directors can join and create a private limited company. A minimum share capital will be Rs. 1 lakh.
Directors can frame Rules, Regulations, Board and Body of Company.
Board may take decisions by making resolutions.
Private limited gives freedom to every director to do their work.
We can maintain separate accounts for individuals and companies.
Limited Liability Partnerships ( LLP )
Limited Liability Partnerships [“LLP”] are perhaps the most misunderstood business entity.
LLP is kind of combination of Proprietorship and Private limited
A limited partnership is similar to a general partnership company but allows a number of the partners to limit their liability.
It is critical to note that these limited partners are simply making a capital [cash, content, equipment] contribution to the partnership.
Partners will not involve actively to run the business. If they are, they lose any protection from partnership debts. Many limited partnerships end disastrously.
If you are married to the idea of pursuing a limited partnership, you must do so in combination with corporations.
Public Limited Companies
A public limited company requires a minimum of 7 shareholders and A minimum of 3 directors.
A minimum share capital will be Rs. 5 lakhs.
Public limited companies can collect money from the public by selling their shares.
We should learn a lot about share and trade marketing. This is enough to know about the public now.
Conclusion on Start a Small Business
Business owners should protect themselves by forming legal Companies for their business activities. Some more legal company formats also exist.
The real issue is identifying the best company for your particular situation.
So discuss with right Charted Accountant before starting a Company.
Listen to the words of a charted accountant but take a decision as per demands which company is appropriate for your idea.