12/12/2016

Lesson2:HowtoChooseLegalEntityinIndiaLegalAdda

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WelcometoStartupIndiaUniversity.Nowinthislesson2:wearelearning
aboutHowtoChooseLegalEntityforyourBusiness.Inthepreviouslesson1
:youlearnaboutthedifferencebetweenbusinessortaxregistration.soin
theconceptofthebusinessregistration,thereis6typeofthelegalentity
whichyouhavetochooseforyourbusiness.
SoLetslearnhowtoChooserightOptionforyourBusinessRegistrationin
India

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Lesson2:HowtoChooseLegalEntityinIndiaLegalAdda

InIndia,thereis6TypeoftheLegalEntity
:
a)PrivateLimitedCompany
b)LimitedLiabilityPartnership
c)OnePersonCompany
d)SoleProprietorshipFirm
e)PartnershipFirmwithoutRegistrarofFirms
f)PartnershipFirmwithRegistrarofFirms
SoLetsunderstandfromStartupPointofviewabouttheeachlegalentityor
optionforthebusinessregistration

a)PrivateLimitedCompany
Requirements:NeedMinimumtwoPersonfortheRegistration(Evenyou
canalsoincludeyouranyfamilymemberonthepaperworkifyouhaveno
partners)
Costing:Nearby15,000/INRwiththeGovernmentChargesinmostofthe
statesexceptPunjab,Kerala,andMP.
Advantages:Easilyraisethefundsfrombanks,angelinvestorandVC
Firms.ItsisoneofthemostPopularlegalentityinIndia,Indias50%
StartupsorbigcompaniesstartedfromPrivateLimitedCompanyinIndia.
Recommendation:Ifyouhavethevisiontoraisethefunds&
growingstartupandneedtrustworthinessamongtheclientswiththelimited
liabilityinthebusinessthenmustgowiththeprivatelimited.Rememberitis
oneofthemostpopularlegalentityconceptsinIndia.EvenoutsideIndia,Its
similartoUSACorporation,soyouareabletodothebusinessanywherein
theworld.
Reasontoavoid:Itisacompanysosetupcostingishighandannual
complianceismoreascomparetotheotherentitiessuchasLLP,Partnership
firmsetc.sosometimesuntestedideasorbusinessavoidthislegalentity.

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Lesson2:HowtoChooseLegalEntityinIndiaLegalAdda

b)LimitedLiabilityPartnership(LLP)
Requirements:NeedMinimumtwoPersonfortheRegistration(Evenyou
canalsoincludeyouranyfamilymemberonthepaperworkifyouhaveno
partners)
Costing:NearbyRs.9,000/to10000/withtheGovernmentChargesand
stamp&notarizationetc.
Advantages:DoingtheBusinesswiththelimitedliabilityandhaving
featuresofaprivatelimitedcompanyinlesscosting.ifyouneedalegalentity
whichcangiveyoubothadvantageofthepartnershipfirmandprivatelimited
companythenLLPisthebest.
Recommendation:IfyourbudgetislessandwanttoenjoytheLimited
Liabilitywiththepartnersinthebusinessandsomefeaturesofprivatelimited
thenLLPistheBestforyourstartup.
Reasontoavoid:Ifyouwanttoraisethefundsinfutureornext12years
thenmustchooseprivatelimitedcompanyinsteadofLLPelsegoforit.

c)OnePersonCompany
Requirements:Need1PersonfortheRegistrationoronthenameofany
familymember.
Costing:Nearby13000INRwiththeGovernmentChargesinmostofthe
statesexceptPunjab,Kerala,andMP.
Advantage:ItssimilartotheprivatelimitedcompanybutnoControlof

anotherpersonintheBusinessorCompanywithLimitedLiabilityFeature.
Recommendation:ifyouneedcompanylegalstatusassinglefounder
thengowiththeOnePersonCompany.
ReasontoAvoid:Weinvestnearby13000INRbutinfuturewecannot
includeapartnerinthebusinesssowhynotgowiththeprivatelimited

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Lesson2:HowtoChooseLegalEntityinIndiaLegalAdda

companyjustspendingextramore20003000INRbecauseitsaonetime
investmentforyourstartup

d)SoleProprietorshipFirm
Requirements:Need1PersonfortheRegistrationoronthenameofany
familymember.
Costing:
ServicedBasedBusiness:Nearby2000INRacrossIndiaormore
dependsonthetypeoftheregistration.
ProductbasedorManufacturingBusiness:Nearby3000INRto5000or
moredependonVAT/CSTorShopactLicenseorMSME.
Advantage:EasytoStartandClosewithlesscostingandlesscompliance
totestingyourideasasthesinglefounder.
Recommendation:ifyouaretestingyourideainthebusiness,youcan
startwiththeSoleProprietorshipFirmthenonlaterstageyoucanconvertor
Incorporateanewprivatelimitedcompanyoranotherlegalentity.
ReasontoAvoid:Itsasimplefirmandnolimitedliabilityandcannotraise
thefundsforyournewstartup.

e)PartnershipFirmRegistrationwithout
RegistrarofFirms
Requirements:NeedMinimum2PersonfortheRegistration(Evenyoucan
alsoincludeyouranyfamilymemberonthepaperwork)
Costing:NearbyRs.2,000/to4000/withtheGovernmentCharges,
Stamp&notarization.
Advantages:LessCostingandLessCompliancefortestingyourIdeas.
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Lesson2:HowtoChooseLegalEntityinIndiaLegalAdda

Recommendation:Ifyourbudgetislessandwantjusttestyourideasthen
youcanregisterapartnershipthefirmwithouttheregistrarofafirmwhichis
theoptionalthing.
Reasontoavoid:InLessCostingitsnotregisteredwiththeRegistrarof
Firmssoyoucannotfilethecaseagainstanypartneroranythirdpartyinthe
business,anotherthingitsasimplefirmandtaxationisthesameasLLPso
ifabudgetdoesnotissuethenchooseLLP.

f)PartnershipFirmRegistrationwiththe
RegistrarofFirms
Requirements:NeedMin2PersonfortheRegistrationasyouorelseyou
canincludeyouranyfamilymemberonthepaper.
Costing:Nearby7000INRto8000INRwiththeGovernmentCharges&
Stamp,NotarizationandmostimportantexpensiveRegistrarofFirms.
Advantages:ItsabestfortheOldFamilyBusinesswherethebusiness
structureisverycomplexonownterms.
Recommendation:WeneverrecommendforthePartnershipFirmwiththe
RegistrarofFirms.ThereasonisCostingisnearbysameasLLPthenwhy
notchooseLLPwhichisthemixtureofthePartnershipFirmandPrivate
LimitedCompany.
Reasontoavoid:WhenLLPGivesyoumoreadvantagesinsamecosting
ortaxationthenwhyavoidtheLLPinsteadofPartnershipFirmwiththe
RegistrarofFirms.
Hereisaquickcomparisonbetweentheeachlegalentitysoyoucanchoose
theRightLegalEntity
Particulars

Costing

Recommendation

PrivateLimitedCompany

15000/INR

WhenYouhaveavisionfortheBigD

GrowingStartupCompany,Goforit.
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Lesson2:HowtoChooseLegalEntityinIndiaLegalAdda

|Fundingarethemainfeatures.
LLP

9000/INR

Whenyouneedlimitedliabilityinthe

partnersandneedprotectiononthe
SoleProprietorshipFirm

OnePersonCompany

2000/INRto

Whenyourbudgetisveryless

5k10kormore

uncertainbusinessopportunity.

13000/INR

Whenyouneedcompanylegalstatu
100%controlofthecompany.

Partnership

2000/INRto

Whenyouwanttotestyourideaswit

Firm(WithoutRegistrarof

4000/INR

businessinuncertainbusinessoppo

PartnershipFirm(With

7000/8000/

Whenyouhavecomplicatedfamilyb

RegistrarofFirms)

INR

Firms)

SoThisisanentirecomparisonbetweentheeachlegalentityinasimplified
manner.StaytunetheStartupIndiaUniversityforthemoreLessononthe
Business.

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