Which Company type is recommended startups?
As of now, the first preference for startups is to form a Private Limited Company, because they have to raise funding by selling their equity in future. Registering a Business like LLP, Proprietorship, and Partnership is not recommended for a startup because it’s very difficult to convince an investor to invest in their company otherwise.
It is always recommended by the consultants to choose a Private Limited Company as the business type as it has the following advantages:
1. Distinct Legal Entity:
The Private Limited Company has a distinct existence and a juristic person (not a natural person or human being) established under the Act. This type of Company has a wide legal capacity and is permitted to own property along with incurring debts.
The liability of the members (Shareholders/Directors) are limited only by their shares; hence the distinct legal entity that benefits the members.
2. Owning the Company:
Since the company is a juristic person it is the only owner and no one can demand the ownership of the company. The shareholders can't make any claim upon the property of the company; the company itself is the true owner.
Funds can be borrowed to a great extent as it can issue debentures and also accept deposits from the public. The shareholders too, add to the capital of the company. The Banking and Financial Organizations are more likely to assist a Private Limited Company rather than a Proprietorship or Partnership.
4. The Scope of Expansion:
There is a higher scope of expansion because it is easy to raise capital from the financial institutes which added advantages of a Private Limited Company.
5. Tax Advantages:
Private Limited Companies enjoy tax advantages added on to the limited liability; wherein the companies pay corporation tax on their taxable profit and tend to get excused from higher personal income tax rates.
Instead of being a sole trader, forming of a company leads to increase in tax deduction and allowances redeemable against profits.
6. Dual Relationship:
This means in a Private Limited Company it is possible to make an effective contract with any of its members. A person can be at the same time be a shareholder, creditor, director and also an employee of the company. It is flexible regarding the members of the company.
Choosing best form of business is that much important as the execution of the idea as if your idea needs funding then Proprietorship and partnership could not give the right plow back what your business needs.
So, before choosing, look over all the aspects that can affect your decision of forming a business.