How to Kickstart Your Business

Let me introduce myself first. I am a practicing chartered accountant in Delhi NCR for last Eleven years. The purpose of my article is to help out people who are in some kind of business or they are planning to start something new.

According to my practical experience, in most of my clients who came to me at the initial phase of their businesses have one thing in common. They were not sure about the form of business entity they want to make. This thing made me realise that if the very first step is wrong, then the entire business will go into wrong direction. For example, one of my client who was employed in a reputed IT company  wanted to start his own IT company to increase his side income by taking projects from foreign and domestic clients. To safeguard his current employment, he did not involve into that company directly, rather he made his uncle and aunty as directors and shareholders in that company. In first year of incorporation, company did well and earned profit, but after that my client got a job opportunity outside India and moved. After this event his company became almost dormant. 

Now let me explain the implications of this.

  1. Every year, my client have to spend approx. 15 to 20 thousand to maintain the status of company as active company. Now you will ask why this expense if there is no income in the company. Then let me clarify one thing, every pvt. Ltd. Company needs to comply with MCA rules. Every year, you have to file annual return with your ROC. Every year, you have to go to a CA for mandatory statutory audit. It does not make difference whether your company is earning or not. So for last three years my client have to spend this amount to keep his company active and to prevent himself from huge penalty cost levied by MCA for late filing of annual returns.
  2. Now, my client wants to shut down this company. But then also, it will cost him another 25-30k. for it as there is a long process involved in shutting down any company.

The whole purpose of explaining all these things to you is to make you aware how important is to choose right form of Business Entity. I am not against incorporating a private limited company for your business but you must know Pros n cons of every form of Business.

Now, let me explain the types of business entities one can register in India:

  • Proprietorship
  • Partnership
  • LLP (Limited Liability Partnership)
  • One Person Company
  • Private Limited Company

In India, any kind of business activity can be conducted in the formats mentioned above. Therefore, it is extremely important to know which form of business suits you. To determine this, you must understand the different options available.

ParticularsProprietorshipPartnershipLLPOPCPvt. Ltd. Company
How to registerThere is no mandatory requirement of any registration.Partnership Deed is mandatory. After that one should apply for PAN of Partnership Firm.LLP is registered through MCA portal. After registration LLP agreement is mandatory.OPC is also registered on MCA. There is no need of any agreement.Pvt. Ltd. Company also needs to be registered through MCA.
Is the entity separate from its owners.No, in proprietorship, Business entity is not separate from its proprietor.In partnership also, Firm is not separate from its partners.Yes, LLP is separate from its partners.Yes, OPC company is also separate from its partners.Yes, Pvt. Ltd. Companies are separate legal entity.
IS GST registration mandatory.No, GST registration is not mandatory unless annual turnover crosses Rs. 40 Lacs. No, GST registration is not mandatory unless annual turnover crosses Rs. 40 Lacs.No, GST registration is not mandatory unless annual turnover crosses Rs. 40 Lacs.No, GST registration is not mandatory unless annual turnover crosses Rs. 40 Lacs.No, GST registration is not mandatory unless annual turnover crosses Rs. 40 Lacs.
Can we open current accountYes, current account can be opened on the name of Proprietorship firm.Yes, current account can be opened on the name of Partnership firm.Yes, current account can be opened on the name of LLP.Yes, current account can be opened on the name of OPC company.Yes, current account can be opened on the name of Pvt. Ltd. Company.
Documents required for opening current account.For opening a current account on the name of firm, Bank needs some business registration proof, so, before proceeding for opening current account, one needs to register his firm under GST or shop & Establishment act.Partnership DeedPAN of firmKYC documents of partnersAddress Proof of registered office of firm.Letter of IncorporationLLP agreementPAN of LLPKYC documents of partnersAddress Proof of registered office of LLPLetter of Incorporation.MOAAOAPAN of OPC KYC documents of director.Address proof of registered office of OPCLetter of Incorporation.MOAAOAPAN of companyKYC documents of directorsAddress proof of registered office of company.
 Time taken to register5-6 working days7 working days3-4 working days3-4 working days3-4 working days
Cost to register1500- 20002500-3000750094409440

So, I have attempted to differentiate the key differences among all forms of business entities, which will help you choose the form of business that is right for you in the long run.

Author Bio:-

Name:- CA DURGA SHANKAR

Qualification:- CA in practice

Firm Name:- S D AND ASSOCIATES


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