Types of Business Formations

Business formation becomes necessary in its initial stages as it gives a proper meaning to the nature of business, the rights and obligations of the founders / owners, the constitution of the business is decided.

There are few constitutions of business which is decided based on the number of people involved in the organisation, the kind of liability each individual is willing to take upon themselves.

Some of the major constitution of the businesses are as follows:

Proprietorship

This is the most simple and easiest way of starting a business as they don’t require much of legal work and paperwork.However, a sole proprietorship business doesn't have any separate legal identity and the entrepreneur personal assets will also be at risk for the business liability.

Partnership Firm

As per Section 4 of Partnership Act, 1932, "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

A partnership consists of some essential elements. Few are as below:

  1. It is carried out as per the agreement among two or more individuals
  2. The terms of the partnership must ascertain all the facts about profit sharing, capital brought in, rights and duties, etc,.
  3. Any Partner of the firm will be representing all the remaining Partners.

Limited Liability Partnership

Limited Liability Partnership is governed under Limited Liability Partnership Act, 2008

LLP is a form of corporate business that shares the benefits of limited liability of a company and the flexibility of a partnership.

LLP is an separate legal entity which means the LLP doesn't dissolve automatically when any partner of the organisation leaves, becomes insolvent or any other reason which makes a partner be longer the partner of the company.


Private Limited Company

Company Formation in India or registered in India are governed by the Companies Act 2013.

A Private Limited Company is a Company limited by shares in which there are minimum 2 Directors.

Company has a separate legal entity independent from its shareholders and directors which has the same legal rights and responsibilities as a person



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