Types of Business For Startups

Different Types of Business in India

For start-ups in India, there are several types of businesses, such as Pvt Ltd company, LLP, OPC, Partnership, and Proprietorship Firms. We help you to choose the best suitable business type. Call us to discuss this now!

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Business Activity

Type of Business based on the Business Activity

The proposed set of activities plays a vital role in deciding on the type that is most appropriate to start business in India. For example, businesses involved in activities of social welfare have completely different objectives compared to businesses involved in sale of products and services for profits, and hence must be registered as different types. The table below mentions the most appropriate types of business based on the activities they are involved in.

Sale for profit	Financial Service	Non Profit
Private Limited Company Public Limited Company One Person Company Limited Liability Partnership Partnership Firm Proprietorship Firm Hindu Undivided Family	Bank NBFC Asset Reconstruction Company Micro Finance Institutions Nidhi Company Payment Banks	Section 8 Company Society Trust

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FDI for different types of businesses

FDI is permitted for businesses in India via two routes, the automatic route and the approval route. Most sectors are permitted to receive 100% FDI under automatic route.

Automatic Route: For FDI received via automatic route, there is no need to obtain prior approval of the government before the shares of the business are sold to foreign investors. However, after receiving the FDI, a report in FC-GPR is to be filed to the RBI through the AD Bank.

Approval Route: Few strategic sectors and the FDI originating from a country that shares land boundaries with India, are permitted only under the Approval Route, whereby a prior approval of the Central Government is required before the FDI is received.

The table below mentions the applicability of Indian and foreign investments for different types of business in India.

100% Indian Investment Permitted	100% foreign investment permitted	Investment permitted by NRI or OCI
Private Limited Company OPC LLP Partnership firm Proprietorship Section 8 Company	Private Limited Company LLP	Company LLP Partnership* Proprietorship* *FDI in Proprietorship and Partnership is allowed only on a Non-Repatriation Basis.

Risk & Liability of a Business Structure

We advise considering the risk or possible liability and then deciding the type with which we can start business in India . One can see that a small retail shop has negligible risk or liability in comparison to a business that is involved in foreign trade or dealing in hazardous chemicals. From the perspective of Risk and Liability, business structure may be divided into two categories. The first category is where the owner’s liability is limited to the capital that he has subscribed, and second category is where the liability of the owners is unlimited.

Concept of Limited Liability: For structures where the businesses and the owners are considered separate legal entities, the owners enjoy protection against the losses and liabilities of the business. Their liability of the owners in a limited liability business is restricted to the share capital that they have subscribed. The below table categorises businesses based on the liability of their owners.

Unlimited Liability to Owners	Limited Liability to Owners
Proprietorship Partnership HUF	Company OPC LLP

Control and Management in Specific Business Type

Business structure like proprietorships and Partnership Firms, have no separation between ownership and management. The sole owner of a proprietorship is responsible for its control and management, whereas each partner in a partnership firm or as decided in the Partnership Deed, is responsible for the management and control of the firm . However, structures like a company or an LLP have separation between ownership and management. The table below categorises each type of business according to the separation between its ownership and management. You can consider the management of the business as a viable factor to start business in India.

S.No	Business Type	Ownership	Management Control
1	Proprietorship	A single Individual known as the proprietor owns the proprietorship business. The proprietor alone invests all the capital and is entitled to the whole of the profits.	There is no separation between the ownership and the management in a proprietorship business. The proprietor controls and manages the business himself.
2	Partnership	In partnership, the partners collectively own the firm on the basis of their capital sharing ratio.	All the partners control and manage the firm, as mentioned in the terms of the partnership deed.
3	LLP	In an LLP, the partners collectively share the ownership on the basis of their capital sharing ratio.	The responsibility of management and control of the LLP resides with its designated partners.
4	OPC	In OPC a single person, known as its shareholder, is the only owner of the OPC	The management and control of the OPC is the responsibility of its directors.
5	Private Limited	Shareholders own a private limited company in the ratio in the ratio of their subscribed capital	The board of directors of the company is responsible for its control and management.

Formation Cost of Various Business Structure

The cost of setting up a startup depends on the professional fee, the government fee, stamp duty and taxes involved. Several factors affect the determination of government fee, such as the initial authorised capital, location of the registered office address, and the number of promoters of the business. You may visit our specific pages dedicated to different types of businesses, to learn more about their overall cost of formation. In case you’re still unsure, our consultants are just a click away. You are just required to contact us and we will help you start business from beginning to the end.

Cost of Compliance of Several Business Structure

The cost of compliance varies from one business type to another based on their specific compliance requirements. The regular costs of compliance like accounting, GST, TDS, Advance Payment of Taxes, Payroll Processing, etc., is almost the same in every business type. However, there are differences in the overall costs majorly because of the annual filing of returns to the ROC. The table below mentions the applicability of annual filing for different business structure in India. You can choose an start business with the structure which requires the least compliances to be fulfilled.

Business Type	ITR	Annual Return	Audit
Proprietorship
Partnership
LLP
OPC
Private Limited

Taxation of Various Business Forms

The Income Tax is levied differently on different types of businesses, so we advise you to obtain a proper consultation and refer to the updated laws for the payment of taxes and filing of tax returns. Given below is a brief discussion on the taxability of the income of the common business structure in India. Considering this parameter, you can accurately decide the structure that you want to start business with.

S.No

Business Type

Income Tax rate

Proprietorship

The proprietorship is not considered as a separate entity in law, and the income of the proprietorship firm is added in the ITR of the proprietor itself. In other words, no separate ITR is filed for the proprietorship firm. The Individual slab based taxation of 5% to 30% based is applicable on a proprietorship based on the income it earns. The deduction under section 80C to U is also applicable on the income of the proprietor. The Individual tax rate slabs for a proprietorship has been mentioned below.

Under New Income Tax Regime U/s 115 BAC
No	Total Income	Tax Rate
1.	Upto Rs. 2,50,000	NIL
2.	Rs. 2,50,001 To Rs. 5,00,000	5%
3.	Rs. 500001 to Rs. 7,50,000	10%
4.	Rs. 7,50,001 to Rs. 10,00,000	15%
5.	Rs. 10,00,001 to Rs. 12,50,000	20%
6.	Rs. 12,50,001 to Rs. 15,00,000	25%
7	Above Rs. 15,00,001	30%

Under the old Income Tax Regime
No	Total Income	Tax Rate
1.	Upto Rs. 2,50,000	Nil
2.	Rs. 2,50,001 to Rs. 5,00,000	5%
3.	Rs. 5,00,001 to Rs. 10,00,000	20%
4.	Above Rs. 10,00,001	30%

Partnership & LLP

Under the Income Tax Act, all the provisions applicable to the partnership firm apply to the LLP. The Income Tax Rate for the partnership firm and the LLP is 30% flat on the total income earned.

Company

The income tax for companies ranges from 15% to 30%, depending on specific categories. There are two categories of companies as mentioned below. Newly Incorporated Company: For companies incorporated on or after 1st October 2019, and which do not claim any concession, deduction, exemption under the income tax act, the tax rates are mentioned in the table below.

Particulars	Manufacturing Company	Other Company
Tax Rate	15%	22%
Surcharge	10% on tax	10% on tax
Cess	4% on tax & cess	4% on tax & Cess
Effective Rate	17.16%	25.168%

For companies that do not fall in the above mentioned category, the income tax rate is 25% in case the turnover is less than Rs.400 Crores and 30% in case the turnover is more than Rs.400 Crores. The Surcharge and education cess at the applicable rate is charged over and above the basic income tax rate.

Business Structure Comparison Chart

Features	Private Limited	OPC	LLP	Partnership	Proprietorship
Popularity	*****	****	****	**	***
Applicable Law	Companies Act, 2013	Companies Act, 2013	LLP Act, 2008	Partnership Act, 1932	No Law
Number of Owners	Minimum 2	Minimum 1	Minimum 2	Minimum 2	Minimum 1
Number of Owners	Maximum 200	Maximum 1	Maximum unlimited	Maximum 20	Maximum 1
Number of Directors/Designated Partners	Minimum 2	Minimum 1	Minimum 2	Not Required	Not Required
Number of Directors/Designated Partners	Maximum 15	Maximum 15	Maximum 15	Not Required	Not Required
Need for Registration	Mandatory	Mandatory	Mandatory	Optional	Not Required
Authority for Registration	Registrar of Companies	Registrar of Companies	Registrar of Companies	Registrar of Firms	Registration not required
Statutory Compliance	High	High	Low	Low	Least
Statutory Compliance	Pvt Ltd Companies have several one-time, annual and monthly RoC and tax compliances	OPCs have several one-time, annual and monthly RoC and tax compliances	LLP do not have any one-time or monthly compliance. THey only have 3 annual compliances that is filing annual returns in form 11, annual financial statements in Form 8, and ITR	Only ITR is to be filed on the due date.	ITR is required to be filed if the taxable income is more than 2.5 Lac
Foreign Investment (FDI)	Available in the automatic route	Not Allowed	Available in the automatic route	Not Allowed	Not Allowed
Separate Legal and Financial Identity of the business	Yes	Yes	Yes	No	No
Liability of the Owners	Limited to the unpaid subscribed capital of the shareholders	Limited to the unpaid subscribed capital of the shareholders	Limited to the unpaid subscribed capital of the shareholders	Liability of each partner is unlimited, and even their personal assets are at the risk for loss	Liability of the proprietor is unlimited and even his personal assets are at a risk of loss
Transfer of Ownership	Possible by selling the shares of the departed shareholder	Possible by inheritance of the nominee of the departed shareholder	Possible, if all partners give their consents for the transfer	Not Possible, as the admission or removal of a partner amounts to the new firm.	Not possible, as a proprietorship dies with the death or departure of its proprietor
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