How to start a Business? Sole Proprietorship vs LLP vs Private Ltd. | Business Basics #1
Summary
TLDRThis video script introduces a series on business basics, focusing on choosing the right business entity for new ventures. It compares Sole Proprietorship, Partnership, OPC, LLP, and Pvt. Ltd., discussing their registration processes, legal implications, and tax liabilities. The speaker, with personal and professional experience, provides insights on which entity suits different business needs and highlights the benefits of a HUF for tax savings, exclusively for Hindu families. The script also promotes a free payroll app for managing staff attendance.
Takeaways
- π Starting a new business requires choosing the right business entity type based on the nature of the venture.
- π’ The types of business entities discussed are Sole Proprietorship, Partnership, OPC (One Person Company), LLP (Limited Liability Partnership), and Pvt. Ltd. (Private Limited Company).
- π Sole Proprietorship requires no registration and has the owner bearing all liabilities and profits.
- π€ A Partnership is formed by an agreement and can be registered or unregistered, with shared profits and liabilities.
- π Private Limited Company is governed by the Companies Act, with a structured setup including directors and shareholders.
- π LLP is an evolved form of a partnership with limited liabilities for partners and is governed by the LLP Act 2008.
- π€ OPC allows an individual to start a company with limited liability and is suitable for businesses needing loans but not wanting to take much personal risk.
- π Registration requirements vary, with Sole Proprietorship and Partnership requiring less formalities compared to Pvt. Ltd., LLP, and OPC which are registered under MCA.
- πΌ Legal liability in Sole Proprietorship and Partnership is unlimited, whereas in Pvt. Ltd., LLP, and OPC, it is limited to the extent of share capital or contribution.
- πΌ Taxation varies by entity, with Sole Proprietorship being taxed as personal income, and Pvt. Ltd. & OPC potentially benefiting from lower tax rates under certain conditions.
- π The choice of business entity depends on factors like compliance preference, business size, risk appetite, and the need for external funding or expansion plans.
Q & A
What are the different types of business entities mentioned in the script?
-The script discusses five types of business entities: Sole Proprietorship, Partnership, Private Limited (Pvt. Ltd.), Limited Liability Partnership (LLP), and One Person Company (OPC). Additionally, a sixth type, the Hindu Undivided Family (HUF), is briefly mentioned.
What is the main difference between a Sole Proprietorship and an OPC?
-A Sole Proprietorship requires no formal registration and the individual owns the entire business with unlimited liability. An OPC, on the other hand, is a registered entity that allows a single person to start a company with limited liability.
What is a Partnership firm, and what are its key features?
-A Partnership firm is a business entity where two or more individuals agree to conduct business together. It does not have a separate legal entity and can be either registered or unregistered, with the agreement typically documented in a Partnership deed.
What are the registration requirements for a Pvt. Ltd. company?
-A Pvt. Ltd. company is registered under the Companies Act and requires compliance with various regulations, including having directors and shareholders, and is overseen by the Ministry of Corporate Affairs (MCA).
What is the significance of the suffixes in the names of Pvt. Ltd., LLP, and OPC entities?
-The suffixes in the names of these entities, such as 'Pvt. Ltd.', 'LLP', and 'OPC Pvt. Ltd.', provide a distinct identity and indicate the type of business entity, which is important for legal recognition and compliance.
What is the difference between a registered and an unregistered Partnership firm?
-A registered Partnership firm has a legally recognized Partnership deed and is registered with the government, while an unregistered Partnership firm operates based on a verbal or written agreement without formal registration.
How does the liability of the promoters differ between different business entities?
-In Sole Proprietorship and Partnership firms, the promoters have unlimited liability. In contrast, in Pvt. Ltd., LLP, and OPC, the liability of the promoters is limited to the extent of their share capital or contribution.
What are the tax implications for different business entities?
-Sole Proprietorships are taxed as individual income, while Pvt. Ltd. and OPC entities are taxed at a flat rate of 30%, with some conditions allowing for a reduced rate. Partnership firms are taxed based on the income distributed to partners.
What is the purpose of the HUF business entity, and which communities can form it?
-The HUF (Hindu Undivided Family) is a business entity that allows Hindu, Jain, Sikh, and Buddhist families to conduct business together with a separate tax identity. It enables tax savings and financial planning within the family.
What are the considerations for choosing the right business entity for a new venture?
-The choice of business entity depends on factors such as the size and nature of the business, the level of risk involved, the need for external funding, the desire for limited liability, and the complexity of compliance and taxation.
What is the role of the Quick Payroll App mentioned in the script?
-The Quick Payroll App is a tool designed to help manage and record employee attendance and payroll efficiently. It is offered for free and includes a feature for direct chat support with the LLA's team.
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