Common types of businesses

The type of business organization you choose will determine how you run it. Here are some of the most common types of business entities:

Sole Proprietorship

In a sole proprietorship, the proprietor pays their income tax on the business’s profits. When it comes to setting up or dissolving a business, sole proprietorships are the easiest. This is why they are popular among sole proprietors, self-employed contractors, freelancers, and consultants. Creating a separate business isn’t often necessary for small businesses. Therefore, sole proprietorships are popular. 

In contrast to an LLC, a corporation, or a limited liability partnership, there is no separate legal entity in a sole proprietorship. Consequently, the sole proprietor is not exempt from any responsibilities or actions the company takes.

Any debt owed by the sole proprietorship is the responsibility of the owner. Likewise, a sole proprietorship’s profits belong to the business owner only.

Partnership

In a partnership, two or more people enter into a formal agreement to manage and operate a business and split the profits.

There are a variety of ways to form a partnership. Partners may or may not have unlimited liability, depending on the terms of the agreement. Another type of partnership is the “silent partner”, in which one party does not participate in the operations.

Each partner is responsible for their own legal and financial responsibilities in a general partnership. The partnership’s debts are the responsibility of each member. Also, the profits are equally split unless agreed otherwise. In a partnership agreement, the details of profit-sharing are likely to be written out in a partnership deed.

Limited Liability Partnerships (LLP)

It is usual for accountants, lawyers, and architects to form limited liability partnerships (LLPs). Equity partners and salaried partners are two further classifications used by law and accounting firms. Salaried partners do not hold any equity in the company. In most cases, they receive additional compensation based on their performance.

To form an LLP, you need to have at least one general partner personally liable for the partnership’s liabilities. The responsibility of at least one partner is limited only to the amount invested. Unlike the active partners, the silent ones are not involved in the company’s day-to-day management.

Limited Liability Companies (LLC)

LLCs shield their owners from personal accountability for the company’s debts and liabilities. Hybrid businesses and limited liability corporations (LLCs) combine a corporation and a partnership or a single proprietorship.

Company

Groups of people form a corporation to legally run a commercial or industrial venture. Depending on the local corporate legislation, a business can be structured in various ways for tax and financial liability considerations. The distinction between private and public companies can also be made. The two companies are vastly different in ownership, rules, and financial reporting.

A company is distinct from its owners, managers, and employees. Most businesses are set up to profit, while some are for charitable purposes. Companies and corporate hierarchies differ from country to country, yet there are many similarities as well.

Documents required to open different types of business in India

A sole proprietorship does not require registration in India. Therefore, you will not need any documents for that. However, you might need a PAN number and the TIN for tax purposes. 

For a partnership business, you need an address proof of the business, identity proof, partnership registration certificate, GST certificate, etc. 

To start a company, you need the following documents:

• No objection certificate (NoC)
• Company PAN card
• Founders agreement
• TIN
• Non-disclosure agreement
• GSTIN
• Shareholder agreement
• Certificate of incorporation

Registering an online business in India

All unicorn businesses in India had to start somewhere. You must first visit the official website of the Ministry of Corporate Affairs to begin the process. Fill out the DIR3 and DSCl. Applying for a DIN online is as simple as filling out these two forms.

If you’re filling out these forms, keep in mind that you’ll need to attach specific papers. These documents are proof of address, proof of employment, a passport, and educational credentials. You will also need to provide passport-sized photos.

The next step is to apply for a Digital Signature Certificate (DSC). You cannot apply for registration online unless you have a Digital Signature Certificate (DSC). Documentation is required for the DSC, as it is for the DIN. It is necessary to have a valid photo ID and all documents mentioned above.

Conclusion

There are many types of top businesses to start in India. Achieving online business growth in India requires you to register your business first. But before anything, you need a strong plan to start a business. During this process, you will decide on a business model and adopt one of the suitable business structure types mentioned above.

FAQs

The post Types of Businesses You Need to Know About appeared first on PayU Blog.