Choosing your Business Organization

So, you have a great product idea, worked out your business model and planning your marketing activities...however, there's one thing which is still keeping you occupied, the regulations aspect or the company formation process.

Though there is a plethora of information available online these days on the 'process' aspect however, couple of hindrances which I faced was:

1. Most of the information discusses the steps involved in company formation; very few discuss the relative merits of one entity over others from a pure business perspective

2. Though there are couple of very good reference sites for the formation process details, largely, information is scattered and an entrepreneur has to sift through multiple sites to arrive at his/her conclusions or depend upon offline inputs from a Chartered Accountant or a Company Secretary.

One of the things which I wanted to discuss/share through this blog, are my experiences in this regard. To begin with, in the Indian context, a company can be classified in the following categories:

1. Proprietorship
2. Partnership
3. Private Limited
4. Public Limited
5. Co-operatives
6. Limited Liability Partnerships
7. Joint Hindu Family Business

The following table details the considerations for choosing a business organization for the below parameters (Click on the image for a larger view):

1. Nature of Business
2. Scale of Operations
3. Market Area
4. Degree of Control
5. Capital Requirements
6. Risk Considerations
7. Tax Liabilities
8. Ease of Formation
9. Entity Continuity



Note: I have restricted the comparison to only the first four entities in the above list; also foreign investors haven’t been considered in this comparison since the legal rules are different for them.

From a pure formation process perspective, there is very little required by way of legal requirements for Proprietorships / Partnerships except:

1. In case of some proprietorships, a local license may be needed for example, Municipal licenses for retail shops, restaurants etc.

2. In case of Partnerships, though not compulsory, registration with government authorities can provide tax benefits

Private Limited and Public Limited firms follow a much more detailed formation process which I will reserve for future posts.

Welcome any inputs / suggestions.