The very first question in the mind of entrepreneurs when they start new business or profession is the structure of entity which can be formed which has legal status and easy to do compliance. Many Start up are confuse whether to Form a Private Limited Company or Limited Liability Partnership or Partnership to begin the new venture. The article gives you analysis which can help you to decide structure of the entity its tax benefit and compliance requirement.

Starting Business or Profession as Sole Proprietor:

Sole proprietor is the easy way to start a business for an individual. Most person go for this option as cost is less to form. For an individual to start a business of its own Sole Proprietor is the Best option. The compliance requirement is relatively less like Filing Returns of Income Tax `

Advantages

  • Easy to Form with Shop and Establishment License requirement, Individual can open a Current Account with the Bank and Start Business or Profession.
  • Chose Any Name of your Proprietor Firm Name. You can register in Trade Mark later.

      Read related article Registration process for Trade Mark

  • No separate PAN card required or Filing Return Required.
  • Easy to Close as No cost of Closure
  • In case of Specified Business or Profession presumptive taxation can be made applicable by declaring certain percentage of income as per Rules of Income Tax

Read related article: How to Pay Zero Tax for Business Receipts -Turnover of Rs 1 Crore

Read related article: How to Pay Zero Tax for Professionals (CA, CS, Lawyers, Doctors, etc) earning Income of Rs 16 Lakhs

Read related article FAQ Tax on Presumptive Taxation Scheme 44AD and 44AE Eligibility Applicability and Advantages

  • No Requirement of deduction of compliance of Tax Deduct at Source -TDS unless an audit has been done in the previous year

 

Disadvantages

  • Liability of Individual is unlimited in case of insolvency. The personal Assets of Individual can be attached in case of loss and or insolvency to business.
  • Income will be merged with Individual income if any.
  • No Formal Structure

 

Compliance Requirement

  • Application of Shop and Establishment License Annually

Read related article Registration process for Gumasta License, documents required, fees under Shop & Establishment Act 1948

Read related article: Gumasta Renewal and Changes procedure as per under Shop & Establishment Act 1948

  • Filing of Income Tax Return is required to be done annually before 31 July in case income is more than Basic Exemption Limit for that year.
  • Tax Audit is compulsory in case of Turnover of Business is more than 2 crore or Income from profession is more than Rs 50 Lakhs.

Read relevant Article Basic of Tax Audit as per Income Tax Act Frequently Asked Questions

  • Payment of Professional Tax if individual is in profession.

Read relevant article: Professional Tax Rate State wise in India

  • Service Tax Registration if turnover is more than Rs 9 Lakhs and Liability to pay in case of more than 10 Lakhs

Read relevant article : Service Tax returns, on-line Payment of Service tax and Dealer/Importer Service tax Return

  • VAT and CST registration as per applicable state

Read relevant article: New Online Process for Registration under MVAT/ CST and Documents Requirement

 

Starting Business or profession as Partnership

Partnership Act 1932 which governs the partnership. Partnership is one is the option when there are two or more person into business. If you are involving more than one person into business the best mode to start with is partnership. The formation of partnership is with making first deed of partnership defining clearly Business purpose, Profit share, loss sharing rights and duties of partners. Most of the time you require a professional help for drafting proper partnership deed. Many people to save cost draft partnership on their own and miss out many provision which are important from Taxation point of view, Goodwill, etc. Every Business and partnership is unique and copy paste of deed do not work in all the cases. So it is always preferable to hire an Expert.

Advantage

  • Easy and quick to form
  • Registration Not compulsory (except in state of Maharashtra and Gujarat)

      Read related article: Step wise Registration process of Partnership Deed in Maharashtra and challenges

  • Cost to formation and registration is low
  • Easy to Dissolve and make settlement
  • Tax benefit of share of profit not taxed twice in hands of partner
  • Minors can be added for benefit of partnership firm

Read relevant article: Partnership Act - Admission and Provision for Minors admitted to the benefits of partnership

 

Disadvantages

  • Liability of Partner is unlimited in case of insolvency. The personal Assets of Partner can be attached in case of loss and or insolvency to business.
  • In case of Non registration where registration is compulsory man provision of partnership Act will not be applicable

 Compliance Requirement

  • Application of Shop and Establishment License Annually

Read relevant article Registration process for Gumasta License, documents required, fees under Shop & Establishment Act 1948

Read relevant article: Gumasta Renewal and Changes procedure as per under Shop & Establishment Act 1948

  • Filing of Income Tax Return is required to be done annually before 31 July in case income is more than Basic Exemption Limit for that year.

            Read relevant article: Income Tax Compliance for Partnership Firm in India

  • Tax Audit is compulsory in case of Turnover of Business is more than 2 crore or Income from profession is more than Rs 50 Lakhs.

Read relevant Article Basic of Tax Audit as per Income Tax Act Frequently Asked Questions

  • Payment of Professional Tax

Read relevant article: Professional Tax Rate State wise in India

  • TDS provision and applicability

Read relevant article: Revised and Latest (TDS) Tax Deducted at Source Rate Chart for FY 2015-16 AY 2016-17

Read relevant article: Revised and Latest TDS Tax Deducted at Source Rate Chart for FY 2016-17 AY 2017-18

  • Service Tax Registration if turnover is more than Rs 9 Lakhs Liability to pay in case of more than 10 Lakhs

Read relevant article : Service Tax returns, on-line Payment of Service tax and Dealer/Importer Service tax Return

Read relevant article: File your Service Tax Return before Due Date to avoid Penalty and Interest

  • VAT and CST registration as per applicable state

Read relevant article: New Online Process for Registration under MVAT/ CST and Documents Requirement

 

Starting Business or profession as Limited Liability Partnership LLP

Limited liability partnership is a separate corporate entity. Two or more person who are willing to start a formal business which has limited liability and a corporate structure can form LLP.  The Process of Formation of LLP is time consuming as it requires few forms to be filed with Ministry of Company Affairs (MCA) and require approval for Name, object clause, and terms and condition of LLP agreement. This is one of the best form to start business with as it has most of benefit of partnership firm and limited liability benefit as it is for Companies. Recently there is increasing trend of partnership and Companies converting to LLP for its benefit and advantages.  Read related article: Procedure for conversion of Company to LLP

 

Advantage

  • Quick formation and incorporation

     Read related article: Step wise Registration Process for Limited Liability Partnership (LLP)

  • Limited Liabilities of Partners.
  • Corporate Entity Separate from Partners
  • Maximum No of 50 Partners with more than

Disadvantage

  • Higher Compliance cost then Partnership and Sole Prop
  • Time consuming process to Dissolve and close LLP

Compliance Requirement

  • Application of Shop and Establishment License Annually

Read related article Registration process for Gumasta License, documents required, fees under Shop & Establishment Act 1948

Read related article: Gumasta Renewal and Changes procedure as per under Shop & Establishment Act 1948

  • Filing of Income Tax Return is required to be done annually before 31 July in case income is more than Basic Exemption Limit for that year. And in case of Audit it is 30 Sepetember

Read relevant article: Income Tax Compliance for Partnership Firm in India

  • Tax Audit is compulsory in case of Turnover of Business is more than 2 crore or Income from profession is more than Rs 50 Lakhs.

Read relevant Article Basic of Tax Audit as per Income Tax Act Frequently Asked Questions

  • Payment of Professional Tax

Read relevant article: Professional Tax Rate State wise in India

  • TDS provision and applicability

Read relevant article: Revised and Latest (TDS) Tax Deducted at Source Rate Chart for FY 2015-16 AY 2016-17

Read relevant article: Revised and Latest TDS Tax Deducted at Source Rate Chart for FY 2016-17 AY 2017-18

  • Service Tax Registration if turnover is more than Rs 9 Lakhs Liability to pay in case of more than 10 Lakhs

Read relevant article: Service Tax returns, on-line Payment of Service tax and Dealer/Importer Service tax Return

Read relevant article: File your Service Tax Return before Due Date to avoid Penalty and Interest

  • VAT and CST registration as per applicable state

Read relevant article: New Online Process for Registration under MVAT/ CST and Documents Requirement

  • Ministry of Company Affair (MCA) Compliance for Filing Annual Return and Solvency certificate. Audit is required in case of Capital contribution is more than Rs 25 Lakhs and / or turnover is more than 40 Lakhs in a year

Read relevant article: Limited Liability Partnership - LLP Annual Compliance Requirement

Starting Business or profession as Company (Private or Public Limited)

The First corporate structure which came decade back and most famous in India is formation of Company. A company is a separate Legal entity which is different from rest all above. It Liability is limited. The Management and Shareholder are different i.e the owner can be different than the person who is running the business.

Advantages

  • Limited Liability
  • Separate ownership and Management
  • Can raise capital through Public Offer – IPO
  • Can raise Deposit from Public
  • Can get their Shares Listed on Recognsied Stock Exchanges in India and Abroad

Read related article: Incorporation of Private Limited Company

Disadvantages

  • Higher Cost of Formation
  • Higher Cost of Compliance
  • Maintaining many registers and Books as per Statue of Companies Act
  • Higher cost of closure

Compliance

  • Application of Shop and Establishment License Annually

Read related article Registration process for Gumasta License, documents required, fees under Shop & Establishment Act 1948

Read related article: Gumasta Renewal and Changes procedure as per under Shop & Establishment Act 1948

  • Filing of Income Tax Return is required to be done annually before 31 July in case income is more than Basic Exemption Limit for that year.

Read relevant article: Income Tax Compliance for Partnership Firm in India

  • Tax Audit is compulsory in case of Turnover of Business is more than 2 crore or Income from profession is more than Rs 50 Lakhs.

Read relevant Article Basic of Tax Audit as per Income Tax Act Frequently Asked Questions

  • Payment of Professional Tax

Read relevant article: Professional Tax Rate State wise in India

  • TDS provision and applicability

Read relevant article: Revised and Latest (TDS) Tax Deducted at Source Rate Chart for FY 2015-16 AY 2016-17

Read relevant article: Revised and Latest TDS Tax Deducted at Source Rate Chart for FY 2016-17 AY 2017-18

  • Service Tax Registration if turnover is more than Rs 9 Lakhs Liability to pay in case of more than 10 Lakhs

Read relevant article: Service Tax returns, on-line Payment of Service tax and Dealer/Importer Service tax Return

Read relevant article: File your Service Tax Return before Due Date to avoid Penalty and Interest

  • VAT and CST registration as per applicable state

Read relevant article: New Online Process for Registration under MVAT/ CST and Documents Requirement

  • Ministry of Company Affair (MCA) Compliance for Filing Annual Return and Statutory Audit is required compulsory

Read Related Article: One Person Company under Companies, 2013: A small step towards Giant leap

For any query you can write to Chirag@cachauhan.in . Before making any decisions do consult your Professional / tax advisor.  Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability neither for the loss or damage of any kind arising out of information in this document nor for any action taken in reliance there on.

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article author Hitesh Solanki
Posted On:  1 year ago

Very Nicely drafted and Share as many as link of compliance. I like it.


article author CA Chirag Chauhan
Posted On:  1 year ago

@ Thanks Hitesh !


article author Nawaj Sayyad
Posted On:  1 year ago

Awsome compilation...


article author CA Chirag Chauhan
Posted On:  1 year ago

Thanks @ Nawaj


article author Venkat Rajesh Allem
Posted On:  6 months ago

Dear Chirag, I have a query about online business, which is not listed in the article. Where does this stand in the above table of particulars? What is the best suggestion, if a salaried individual wants to start online business?


article author CA Chirag Chauhan
Posted On:  6 months ago

@ Venkat - We have to structure it in above entity. I can suggest you options based on your requirment. Can you email me your specific requirment at chirag@cachauhan.in


article author

CA Chirag Chauhan

Tax Expert
Chartered Accountant, CA Chauhan



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    I hope by reading this article you got enlighten on ,Starting a New Business or Profession? Compare Structure and type of Entity– Sole, Partnership, LLP or CompanyLLP compliance, LLP Formation, Company Compliance, Company Formation, Partnership Compliance, Partnership formation, Sole trader concern, TDS, Registration, MCA, Starting a New Business or Profession? Compare Structure and type of Entity– Sole, Partnership, LLP or Company, further to mention before taken any financial decision based on this content it is prefered to take an expert opinion as matter can be subjective.