SELECTION OF BUSINESS STRUCTURE

SELECTION OF BUSINESS STRUCTURE

Selecting correct business structure is very important for the success of any business. This is based on many parameters including your present plan and future plan, number of partners, investment required, foreign investment, area of operation, ability to take risk etc. below are the some of the points which helps you to select business form. 

Business Risk and Personal Assets:

The possibility that a business will have lower than anticipated profits, or that it will experience a loss rather than a profit. Business risk is influenced by numerous factors, including sales volume, per-unit price, input costs, competition, overall economic climate and government regulations. If someone do business as partnership or proprietorship and if he/she incurs loss or business create some liability, then creditor can recover from the assets of business owners. But in case of Company or LLP, the liability is limited to the extent of their investment and no one can claim more than the committed amount. So, in case of businesses with more risk, LLP or Company would be ideal.

Acceptance:

Incorporated businesses like LLP and Company have more acceptance than partnership or proprietorship. This is because, all information regarding the partners, directors etc are available in the public domain. This give more acceptance to LLP and Company compared to Partnership or Proprietorship

Investors:

If your business has foreign investors, the best option is Company. It is also possible to have foreign investors in LLP subject to central government approvals.

Tax:

Proprietorship is taxed as individual income of the proprietor. In partnership and LLP, tax is at 30.9% after partner’s salary which is taxed as personal income of partners. No tax payable on Profit after tax in partnership and LLP.

In Company, 30.9% is the tax rate plus surcharges and profit distribution also attract tax at 16% plus surcharges.

A domestic Company with turnover or the gross receipts up to Rs.50 Crore shall be taxed at 25% plus surcharges.

Business Succession:

In LLP and Company, business will continue irrespective of changes in the owners.


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