Types of business forms in india

1,793 Views Updated: 28 Jun 2018
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Types of business forms in india

Various forms of business structures are available in India. Entrepreneurs must pay a greater attention in picking the right business structure. In fact, it is a crucial decision. Because, business structure decides the responsibility, power, risk and control along with the distribution of profits and losses. Though investment and idea play an important role in developing your business, only these two factors do not support the development. The business structure is to be taken into consideration for achieving success. In India, Various business structures like the sole proprietor, partnership firm, public limited company, the private limited company are prevailing. Every business structure has its own pros and cons.

This article helps to update you about the various business structures prevailing in India.  

1. Sole Proprietorship 

There is no division of management and ownership. The entire business is managed and operated by the single person. The owner is solely responsible for the capital and risks. This form of business structure is very easy to form. Quick decisions can be taken and prompt action can be implemented. Secrets of the business can be maintained easily. This form of business can be operated in a flexible manner. The owner has unlimited liability. Business continues with limited resources. The business operates with limited expertise. Lack of consistency is the main problem of this business form.

2. Partnership 

A partnership can be considered as an agreement between 2 or more persons who join their hands with a common objective of earning profits. Members of this partnership business form are known as partners. People with different talent, knowledge, and skill come together to form a business. As per the agreed ratio, they share the profits and losses. Registration is not mandatory but recommended. Partnership deed prepared by the partners when forming a business lists out the names, addresses, profits and loss sharing ratio and capital investment by each partner. Minimum 2 persons are required to form a partnership. The number of members should not exceed 10 in the case of banking and 20 in others. All the partners have unlimited liability.

3. Limited Liability Partnership (LLP) 

This form of business structure provides limited liability to the partners. The Companies Act, 2008 gave this form of business the freedom to operate its affairs. Becoming a partner of Limited liability partnership does not involve a lengthy and complicated process. It is very simple. Liability of partners is limited to the extent of capital contributions made by them.

4. Private Limited Company 

This kind of company is easy to form. Minimum 2 members and 2 directors are required for the formation of this business structure. Maximum members should not exceed 200. The number of shareholders is restricted to 50 only. This form of the company should not invite shares from the public. Mostly, investors prefer this kind of company to buy/sell shares easily.

5. Public Limited Company 

They can raise capital in the form of shares from the public. 3 directors are required to form this type of business. Minimum 7 shareholders are required. There are no limitations on the number of shareholders. Liability of shareholders is limited to the extent of shares face value and the premium of their shares.

6. One Person Company 

In this form of business structure, only one person acts as a shareholder and as well as a director. This option is available to the Indian residents only. A person who is not residing in India cannot operate this form. Not many formalities are required for the formation. Minimum paid-up capital for setting up this kind of company is one lakh rupees while the maximum is fifty lakhs. The main idea behind the introduction of this kind of form is to allow an individual to incorporate their own business.

7. NGO 

NGO can be referred to as a nonprofit company or Non-Government Organization. This form of the company operates independently of the government. The intention of such kinds of a company is social service. Profit is not the goal of such companies. These kinds of companies work for the betterment of people.

8. Producer Company 

This form of company is registered under the Companies Act, 2013. It can be formed by ten or more producers involved in related activities, produce ,and growth. Five directors and five lakh rupees of authorized capital are needed to start this form. The procedure for setting up this form is quite similar to the forming procedure of private limited company.

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