company registration

Selecting the type of Business Entity a Challenge for Startups

Starting an entrepreneurship is not an easy task for new and young entrepreneurs, there are some unique challenges faced by them when compared to experienced entrepreneurs. For entrepreneurs who have been in years of business face challenges of establishing their brand, keeping business profitable, to match the competition in the market etc. But for entrepreneurs, who have just entered into the game or planning about becoming an entrepreneur face some unique challenges during the time of inception. I have tried to capture lists of challenges faced by entrepreneurs in today's ultra-competitive business world as well as solutions.

Selecting the type of Business Entity

The first and foremost challenge and we can call it the difficult part faced by new entrepreneurs is to choose type of business entity to start with. They get confused in choosing among the various options available i.e. sole proprietorship, partnership, limited liability partnership, Private limited company or public limited Company.

  • sole proprietorship though have some advantages such as managerial control to proprietor, but it is have many disadvantage i.e. of having liability for all financial obligations, limited source of arranging funds, non-diversion of risk etc. Every business needs capital to grow and later on during affairs of business it lends itself to many risk and liability. Therefore if you can personally arrange all the capital required for a business to grow and can afford the risk and liability, you can go with forming sole proprietorship,If you can't,sole proprietorship may not be the best way to start with.

  • Primary advantage of partnership firm is that, the partners can share the risk that can be incurred in starting gate of business, capital are accumulated by each of the partners. Registration of the firm is not compulsory but is always advisable to register partnership firm if you decide to begin your business with this type of entity.  But in case of partnership firm each partners are personally liable for tax, debt and any other obligations of the business. There is restriction on the maximum number of partners that can be introduced in partnership firm which limits the amount of capital that can be raised. Transfer of ownership is also cumbersome, as in many case consent of all partners are required.

  • Limited Liability Partnerships (LLP) is a type of legal business entity separate from its partners. It is often termed as a hybrid of a company and a partnership firm as the owners take advantage of the benefits of both forms of business i.e. that of a limited company and partnership. The biggest disadvantage of Limited liability partnership is the additional fees charged by government for delay in reporting compliances. As compared to limited company where government has fixed a limit of additional fees for delay in reporting, Limited liability partnership has to pay additional fees for every day during which the default continues, which sometimes comes to lakhs of rupees.

  • Private limited or Public Limited company being a legal person is distinct from those who founded and incorporated the company. The primary advantage of Limited company is that, If Shareholders/Members holds fully-paid shares; they have no further liability to pay any amount even if the company is declared insolvent. The only disadvantage of limited company is the record-keeping and compliances that's required as compared to proprietorship and partnership. All the financials of limited company are on public record.

But if you are looking for a long term business, it is advisable to start your business by incorporating Limited company, since Limited Company creates a professional and corporate image and are considered to be more established, credible and committed type of business entity. Sense of security is also provided to banks, venture capitalist, industry professions while investing in the company.

 Statements and opinions expressed in articles are those of the author's personal views.

About the author: Satyendra Kumar Mishra

Satyendra Mishra is the founder and CEO of which was founded with the singular objective of offerings the highest quality corporate and incorporation services to its clients all over the globe. Since its foundation, has helped entrepreneurs across India to incorporate their businesses in a fast and secure manner.

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