How to Choose a Business Structure in India

Business organization refers to a integrated structure where all necessary arrangements required to conduct a business in an optimized manner. It refers to each and every steps that need to be executed for establishing and maintaining relationship and communication between men, material, money, and machinery to carry on the business in an efficient manner for earning profits. This may be called the Planning, organizing and structuring which are the integral part of Business management.

Business organization refers to a integrated structure where all necessary arrangements required to conduct a business in an optimized manner. It refers to each and every steps that need to be executed for establishing and maintaining relationship and communication between men, material, money, and machinery to carry on the business in an efficient manner for earning profits. This may be called the Planning, organizing and structuring which are the integral part of Business management.
The arrangements which are essential and bear the characteristics of this process of organizing the factors required for commencing and carrying on the business is called Business Organization. 
There are number of factors which are required to evaluate before selecting a business organization and its registration, factors important for the selection of a business organization are:

  • Nature of Business: Nature of business represents the core features of business and its current and future scope & growth assessment. For example: In small trading businesses, professions, and rendering of personal services; sole proprietorship is a natural choice for the persons who wants to start any business activity. Same way when we speak about start-ups, Sole proprietorshippredominantly occupies our mind.
    For instances businesses like Laundry shop, beauty parlours, repair shops, small tea/coffee shops small retail shops, painters, tailoring shops, shoe repairing shops etc for these business activities sole proprietorship registration is mostly suitable if the scale and aim is small. But its important to note that thepartnership is also suitable for all these businesses, when the scale of business is slightly higher than the sole proprietorship and there are more than one owners who wants to start the business together.
    At the same time the partnership firms also have the advantage in the case of medium scale manufacturing units. Even for real estate, medium scale restaurants people like the form of partnership.
    When a person wish to start a business with a separate legal status for his/her business with having all the features and characteristics of their sole proprietorship and control it’s suitable for them to form a One Person Company(OPC)OPC is a new concept and a combination of Sole proprietorship and company.
    Another alternative form of business is Limited Liability Partnership(LLP) where two or more persons are engaged and involved in carrying out their business under the Limited Liability Partnership Act 2008. It’s popular now a days because of the limited liabilities of its partners and the liabilities of the LLP lies with the entity & does not fall on the shoulders of individual partners, unlike the partnership firm.
    Nature of Business is one of the biggest factor before selecting an organisation for registration.
    Scale of Operations: The another factor which affects the form of business is the range of its operations. If the range or scale of operations of the business is too small, one must choose OPC or Sole proprietorship; if the operation or the activity level range is medium, which means the the firm is not too small nor too large- partnership or LLP are the most preferrreable choice; whereas, in case of large scale operations, company form is beneficial. The market area and future expansion of the market areas are also very important factor in determining the scale of business and thus the choice of business organisations.
  • Need For Capital: Capital is the fuel for business without which it cannot be started. This is also one of the big factor in deciding the form of ownership organization. Requirement of capital is closely related to the nature of business operations and the scale. The businesses like Iron, steel plant, cement, heavy machinery & tools, Engineering tools and equipment’s, and large scale infrastructure projects where large amount of capital is required to finance the raw materials, man power, machinery and plant they can be set up as public limited companies by raising and collecting capital from the public.

Enterprises requiring small investment like small stores and shops can be registered as sole proprietorship and partnership. For medium scale businesses OPC and LLP are more preferable.

  • Managerial Ability: Division of work, job specialization and professional management is not possible in sole proprietorship or in OPC. Because the size of the business is small and its difficult for the proprietor or the sole owner of the firm to manage everything with professional corporate management. But in the other form of organization size of the business allows the firm to diversify their work that which allows their partners, workers and directors to specialize in specific areas like marketing, finance, and human resource management. This leads to better output and decision making which automatically develops the efficiency of the firm.
  • Degree of control and management: The desire of an entrepreneur to control and manage his or her business is another key factor in deciding the choice of form of organization. In sole proprietorship and OPC the owner have the total control over its management and policy. In partnership and LLP control and management policy decision making are jointly shared by it’s partners. But in case of company i.e. public limited company the control and policy are more diverse in nature and the responsibility is upon the board of directors, who are generally selected by the representatives of shareholders.
    So those entrepreneurs who want to enjoy the absolute and direct control over the business prefers sole proprietorship over partnership or company.
  • Degree of risk and liability: The risk associated with opening up a firm and the wish of the entrepreneur to bear and carry that risk is another important factor in the selection of a business organization. More the size of the business more the risk attached with that business, and the smaller size of the business attracts lower amount of risk.

For the businesses like sole proprietorship and OPC deal with smaller amount of risk as compared to partnership firm or LLP. At the same time even the risk associated with partnership and LLP is much lower than the private limited and public companies. However the risk associated with the formation of a businesses can be also evaluated through different parameter. In sole proprietorship the risk will be entirely upon the proprietor himself. The proprietor is personally liable for the total debt and the liability of the firm. By the same manner in partnership firms and LLP the risk is shared among it’s partners and each partners are jointly and individually responsible for the liabilities of their firm.
Companies like private limited and public limited have a real advantage, as far as the risk is concerned, over the other type of business organization. As these form of businesses have their separate legal entity, the risk is limited for the creditors claim, only to the extent of the company’s assets.

Precautions before choosing your accounting & compliance firm:

Choosing your partner for accounting, tax and compliance is most simple yet critical job for a entrepreneur. Because the reliability and trust move side by side with this relationship. The most vital question before the entrepreneur is that how he/she should choose a firm for his/her tax compliance & book keeping. i.e. what are the prerequisites for selecting a suitable firm for tax and accounting compliances ?

  1. Total service and availabilty: A firm one choose for his/her tax and compliances must be capable of providing total service regarding company registration, annual compliance, accounting, tax, audit and book keeping, licences registration, statutory compliance, company dissolve/ strike off and every other services required for the maintenance of the firm. The firm should have the solution for every problem encountered by the firm legally and compliance wise. The big advantage is of this firm is that the entrepreneur does not have to think about the solution for each problem, it’s the firm which will take care of those.
  2. Degree of trust: A good accounting and compliance firm is like an experienced and trustworthy doctor of his/her patients. Like a patient an entrepreneur also need to speak freely to his/her accounting and taxation partner about everything and anything. There should be a trust about password, user id and other secret financial and banking information’s between an entrepreneur and his firm. For that reason the credibility of the matters the most.
  3. Professionalism: From an entrepreneurs point of view a firms most important quality is it’s professionalism. That is it’s presence in virtual world, communication level and standard, transparency, quality human resources, and the ability to reach easily solidify a firms professionalism and thus increase the trust of the entrepreneur.
  4. Timely delivery of service: It’s always does not mean quick, it’s mean the time management of for different compliance at different time. The firm should have the compliance calendar for each and every client, the firm should maintain a proper and comprehensive client database, timely reminder to the clients about his or her tentative dates of tax and statutory compliances etc. The firm should care it’s each and every client as their most important and elegant assets. And it should be believable to the entrepreneurs.
  5. Knowledge and Accuracy: One of the most important factor before choosing an accounting taxation and compliances firm is their knowledge skill and ability to understand an act or rule passed by the government and parliament, and make simple interpretation to it’s client. It’s also emboldens the confidence of the entrepreneur and businessman for the firm. The knowledge and expertise of it’s employees is a crowning jewel to firms reputation.

At the end the entrepreneur should look for a firm who can communicate, freely and fearlessly about it’s service cost, problems of any particular newly passed act and also its advantages, help the entrepreneur in its critical decision making process and alarm any danger at the right time. But Most importantly it’s inclusiveness of all financial accounting tax and statutory compliances are the key factors for any entrepreneur before choosing a firm for their businesses.

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