Sole Proprietorship

Introduction:

It is the simplest business form and the perfect choice to operate businesses from
small to medium size.
As the name implies, “Sole” implies “only one” and “Proprietorship” refers to
ownership. It is also known as sole trader or individual entrepreneurship Sole
proprietorship can be explained in simple words as the type of unincorporated
business structure or an organization or a business that is fully owned, operated
and controlled by a single person who is the sole beneficiary for all sorts of profits,
losses, debts or liabilities and is responsible for all risk types. To start a small
business it is most reliable especially in the initial years of its operation. These
business types are usually a specialized service like beauty parlors, small retails
shops, or hair salons. It is basically a one-man organization that manages and
controls all operations alone. As the Business and the person involved are one and
the same, there will not be any separate legal entity. This kind of business need not
be incorporated or get registered.

Features of Proprietorship
 1. Less Legal Formalities

There is no separate law related with a sole proprietorship to govern it and thus,
there is no existence of any set of special rules as well as regulations to follow.
Moreover, the best part is that it does not need either any registration or
incorporation of any type. In most of the cases, we require only the license to start
up the desired business. As similar to that of the commencement, there are no legal
operations attached to the closing procedures. So, it provides easiness to begin a
business and do it with less hassle.

2. Liability

As there is no separation between the business and the entrepreneur, the personal
liability of the business owner is unlimited. If the business is not able to pay its
debts and liabilities, then the business owner is accountable for the same and pay
them. For instance, the owner needs to pay the pending amount either by selling
their assets or property such as a house, care, and others.

3. Risk and Profit

The owner of this business is the risk bearer in a sole proprietary. Since the
entrepreneur is the only person who invested in the business financially, so all risks
belong to him only. Whether the business fails or grows, the owner is the person
who gets affected by the same. On the contrary, he also enjoys all profits earned
from the business. There is no need to divide and share profits with stakeholders as
there is no existence. Thus, he bears all risks and earns profits too.

4. No separate legal identity

In legal terms, the business and the owner are not treated separately as both are the
one and same thing. No separate legal entity belongs to a sole proprietor and the
owner is wholly and solely responsible for all business activities and transactions.

5. Continuity

As we all know that the business and the owner have the same identity. So, a sole
proprietorship has entirely relied on the business owner. Some factors affect a sole
proprietorship such as retirement, insanity, bankruptcy, death, and imprisonment.
In such a situation, the sole proprietorship puts to an end.
 6. Control

As all the business operations and responsibilities lie with the sole proprietor, so he
controls all the business solely. No other person can partake in business activities
and the owner can modify or expand the business as per their comfort and plans.

Advantages

1. Easy to start and Easy to wind up

A single-owner gets entered into this type of business structure with

minimum legal formalities. Alike, in the end, the process of closure is too
easy and simple whenever a person wants to pat an end. There are no
lengthy steps of procedures involved in the formation and closure of a sole
proprietorship. Despite its loopholes, most of the business people prefer this
type of In the end, most business people opt for a sole proprietorship despite
all its loopholes as it is a simple startup founder. The business structure is
suitable where the product is limited or the customers want more
personalized services. A sole proprietorship suits the best where manual
skills are needed and where the requirement for capital investment is low
and does not have a huge risk degree.
2. Flexible in operations
3. Quick Decision making -- A sole business owner is liberal to take all kinds
of business-related decisions as there is no need to consult with any partner
or stakeholder. So. You can take prompt decisions as there is no need to get
any sort of permission from anyone. There is no other person involved and
he is the sole investor who has invested in the business.
4. Prompt action
5. Direct maintenance of business
6. Easy to maintain records
7. No assets Bifurcation - There is no asset bifurcation as to business or
personal assets. Both can be used one’s business and are treated as owner’s
assets.

Disadvantages
1. Limited Resources -- The resources invested in the business are limited as
it may be taken mostly from the relatives and friends in the form of
borrowing and sometimes, savings too. Banks hesitate to provide them long-
term loans because of the small-scale business and weak financial
background. Lack of monetary resources becomes a hindrance to the growth
of the business and due to these, the business will remain small.
2. Unlimited liability -- There is an unlimited liability of the owner. When the
owner has to pay the liabilities, he pays off from his own pocket. When he
hires his persons, he is to give them their share of income only. Else
everything is of the owner and he is to only, deal with it. some get sick from
the products and services offered by your business, then they can sue you
directly. If they win, then all your assets and including money, property, and
car are all theirs.
3. Limited size --
4. Lack of continuity -- Some factors affect a sole proprietorship such as retirement,
insanity, bankruptcy, death, and imprisonment. In such a situation, the sole proprietorship puts
to an end.

5. Lack of managerial expertise - sole proprietor has to take all sorts of

responsibilities to run a business. Sometimes, the owner needs to perform
some tasks such as sales, buying, marketing, dealing with all clients, and so
on. He may not able to appoint aspiring and desirable employees.
6. Heavy burden for big businesses -- For some persons, handling a business
alone seems to be harder and riskier if it widespread or having a huge
turnover. So, he then turns it into a different business structure inviting legal
compliances and consequences, higher costs, tax burden, etc. For an
example, Mr. A (a sole proprietor) is having his three shops of electronic
items. Presently he is the only person managing these all shops. Now, if he
decides to form a partnership with another person say, Mr. B, then he will
have to give him an agreed share mutually decided by both of them. Also,
The Indian Partnership Act, 1932 will be applicable to them for which
Partnership Deed will have to be drawn mentioning many details of the
business, etc
7. Owners death – Business death -- Unless there is a clarity from the
beginning as to who will continue the business after the owner’s death, the
business also dies once the owner dies. This may lead to loss of goodwill
 and the good impact created amongst the society and public at large. There
is no perpetual existence in this business type like in a company.
8. Less credibility and branding : A sole proprietor must invoice, receive
payment, open a bank account, and market with their surname unless their
state allows them to register and maintain a doing business as (DBA) name.
Needs
1. Business Name
2. Business location
3. DBA Certificate -- If you operate a sole proprietorship and wish to conduct
business under an assumed name, you can register a “doing business as”
name (DBA) for your company. With a DBA, you can even open a business
bank account and receive payments under your fictitious name.

Types of Sole Proprietorship

There are three types of sole proprietorships that we have given below.

 Independent Contractors

This is the self-employed person who takes some projects from the clients. They are liberal to
choose which clients are suitable for them but they need to work according to the methods and
processes that the respective client needs.

 Business owner

They are the self-employed sole proprietors but they hold more autonomy in which way they
work is finished for clients and the processes may even a bit complex with employees and
intellectual property.

 Franchise

They are sole proprietors. These can get inspiration from the brand, business model, guidance,
and so on in exchange for royalties as we have paid to the franchisor.

Registration of Sole Proprietorship

The procedure for incorporating a sole proprietorship firm is-

1. Applying for PAN card.

2. After obtaining a PAN card, or if the proprietor already has a PAN card, the next step is to keep a
name for the sole proprietorship business.
 3. The next step is to open a bank account in the name of the business. All the transactions of the
business will be through this bank account.
4. Though no specific registration is required for starting a sole proprietorship firm, certain basic
registrations are required to be obtained by a sole proprietorship firm for doing business. The
basic registrations required by a sole proprietorship is of three types

A sole proprietor can register his business under the Shop and Establishment Act, if he has a shop as a
place of business.

shop means any premises:

 a place where goods are sold, either by retail, wholesale, or

 a place from where services are provided to customers.
 It includes an office, a store-room, godown, warehouse or work place, whether in the
same premises or otherwise, which is used in connection with such trade/ business.

It does not include a factory, a commercial establishment, residential hotel, restaurant, eating
house, theater or other place of public amusement or entertainment;

If you have a shop as per the definition given above, then you can register your sole
proprietorship business under the Shop and Establishment Act by making an application to the
local Municipal Corporation of your city.

As a business owner of a shop or establishment, you are compulsorily required to get the same
registered under the Shops and Establishment Act. Here are the specific rules:

•Submit an application in the prescribed form to the Inspector of the area within 30 days of
starting any work in your shop/establishment. The application is to be submitted along with the
prescribed fees and should contain the following information:

1. Your name as the employer and the name of a manager, if any;

2. The postal address of your establishment;
3. The name of your establishment;
4. Such other particulars as may be prescribed.

• Upon receiving the application for registration and the fees, the Inspector shall verify the
accuracy and correctness of the application.

Once suitably satisfied, he shall enter the details in the Register of Establishments and issue a
registration certificate of your establishment to you. This certificate will be valid for 5 years and
has to be renewed thereafter.

• Remember, the registration certificate has to be prominently displayed at your establishment.

Communication of Change to the Inspector:
In case of any change with respect to any of the information given during the application for
registration, the same has to be notified to the Inspector’s office within 15 days after the change
has taken place.

Once again the Inspector will verify the correctness of the details furnished, make the related
change in the Register of Establishments, amend the registration certificate or issue a fresh
registration certificate, as he may deem fit.

B) Sole Proprietorship Registration through Udyog Aadhaar under Ministry of

MSME

An Udyog Aadhaar is a unique identification number provided by the Ministry of MSME to the
business owners. Along with all other entities such as company and partnership, even a sole
proprietor can apply for udyog aadhaar.

Apart from getting eligible to avail the benefits offered by the Ministry of MSME, a sole
proprietor has an added advantage of getting a unique identity for his business which is also
considered as Sole Proprietorship Registration.

Udyog Aadhaar is a new method of registration under Ministry of MSME. It has replaced the old
method of registration, where form EM-I and EM-II were used to register. Now, by applying for
Udyog Aadhar any business can register itself to avail the benefits of the various schemes
introduced by the Ministry of MSME.

Sole Proprietorship Registration through GST Registration

GST registration is another way of getting your sole proprietorship registered. You can apply for
GST registration if you are dealing in any kind of exchange of goods and services. It has
replaced the old VAT and Service tax registration.

GST registration is a great method of getting an identity for your sole proprietorship concern.
However, there are certain important considerations that must be evaluated before opting this
method.

Under GST registration, the only drawback is that after registration it is mandatory to meet all
the compliances. Every registered business has to compulsorily collect the tax from the
customers and file the GST returns.

If a sole proprietor has a turnover of less than Rs. 20 Lakhs, it is not mandatory for him to get
registered and collect GST. But if he still chooses to register in order to register his sole
proprietorship then he will have to go through unnecessary added compliances which he could
have avoided.
Documents Required for Sole Proprietorship

The documents required for registration of Sole Proprietorship are-

1. Aadhaar Card.
2. PAN Card.
3. Registered Office proof.
4. Bank Account.

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Starting a Sole Proprietorship

It is simple and easy to establish a sole proprietorship but still, it needs a person to follow some
steps required to commence a great business from the initial stage. Let us begin with the same
below.

1. Business type you’ll begin

As it is free and easy to set up, so people prefer to turn their hustles into something simple and
more profitable. A wide range of businesses is operated as sole proprietorships. Some of them
include web developer, virtual assistant, IT consultant, digital marketer, Freelance graphic
designer, daycare operator, fitness instructor. Housekeeper, branding specialist, Caterer,
computer specialist, direct salesperson, and so on.

2. Make sure sole proprietorship is good for you

The key to a venture success is to pick up the right type of business structure. The business
structure that you’re opting for has a great impact on your daily operations, taxes, and what risks
you’re taking for your assets. There are just a few ways available that are helpful to structure
your business such as sole proprietorship, partnership, LLCs, corporations, and cooperatives.
While a sole proprietorship and LLCs are the most common structures with a few differences.
Consider the pros of sole proprietorship below to decide which one is better:

 Full authority for decisions

 Easy to establish
 Simple tax filing
 No cost to start
 No Balance sheet is required.
 Low rates for taxes.

Based on these aspects, decide what matters the most for you and choose the right one.
 3. Choose a business name

It is a fun part when it comes to choosing the name for your business and researching whether it
has already taken or available for you. After selecting a name for your business, get it
trademarked as no one will not claim on your chosen business name.

4. Register your DBA

Being a sole proprietor, the business is running on your name and if you want it labeled with
another name, then go for “doing business as” to register your business. It is also known as DBA.
Most cases require you to distinguish between the personal funds and business. A DBA is
necessary while opening a bank account for the business. You may also need some follow-up
steps for registration. A DBA makes sure that no one else will do business at the same business
name in the nation.

5. Buy a domain

Once you have done with the choice of your business name, then it is time to get a domain. To
keep a balance with your business, you need to make sure that the domain name includes the
name of the business too. If you are not ready to build a website, then you should reserve or
purchase a domain name as no one else will not take it in the future.

6. Business licenses

A sole proprietorship requires a license to run the business in some cities. Do not try to skimp
here as it may lead to fines if you have no license to do so. The charges can be steep. While
opening a bank account for business, you need a license too.

7. Keep an eye over other licenses and permits

The fees amount attached to the right type of licenses and permits can be crippling to a new start-
up. Check out any licenses and permits that may be needed for your business. This may include
the following:

 A health department permits if the business is related to food.

 A license for transporting animals.
 A certification to become a financial advisor.
 A zoning permit to operate a business from home.

Do the legwork and find out the suitable permits, if any required for operating your business.
Otherwise, consequences can come in the form of fines that are nothing in comparison with the
permit fees.

8. Get an EIN
If you are working alone with the business, then there is no need to take any Employee
Identification Number. But it is required in case you are planning to employ a person who will
help you in the business. You must file an EIN if you are planning for retirement or want to hire
an employee.

9. Open a business account

It is vital to keep all personal and business expenses different when running a sole proprietorship.
Opening a business bank account make sure that you have a certain level of protection for
business funds that enable you to pay with a credit card and also, make cheques that are payable
to the business and build a good credit history.

10. Get Insurance

The main risks attached with a sole proprietorship are the liability risk that lowers the burden and
having insurance is mandatory to minimize the risk. Opting for the one from property and
liability coverage, health coverage, disability coverage, and auto insurance. This can be a bit
steep but it ensures the safety of the personal assets against any lawsuits as well as professional
setbacks that may arise.

Sole Proprietorship Registration is not mandatory. It is optional on whether a person intends to

register his sole proprietorship or not.

Although, banks insist on getting sole proprietorship registered if you intent to open a bank
account in the name of your business, but as per law – it is not mandatory.

Freelance Writers

Freelance writers contribute a variety of written content to magazines, websites and other
businesses. By nature, freelance writers typically work as independent contractors, so their
businesses are a perfect fit for sole proprietorship.

Bakers and Chefs

If you love to bake or prepare food for others as a service--meaning, you're getting paid to do it--
you’re a great candidate for a sole proprietorship. Be aware, however, that if you’re making food
and baked goods in your own home, you may be subject to a state health inspection or you may
require other zoning permits.
Direct Sellers

Direct sales is a multi-billion-dollar industry, with millions of men and women selling everything
from diet shakes to beauty products. Although affiliated with a much larger business, most direct
sellers own their own businesses and are independent contractors; therefore, they are required to
handle their own taxes and bookkeeping.

Housekeepers

If you’re running a housekeeping service by yourself, establishing a sole proprietorship can be

the way to go. As with landscaping businesses, however, if your business begins to thrive and
you start to hire more help, you’ll need to restructure your business to avoid any future tax
penalties.

Day Care Owners

Starting an in-home childcare business can be profitable, but doing so involves numerous state
regulations regarding the cleanliness and safety of your home, as well as stipulations regarding
liability insurance. While setting up a sole proprietorship is an efficient way to structure your
business, you’ll want to make sure you meet all of your state’s requirements before welcoming
children into your home, so that you’re not met with legal penalties down the road.

Graphic Designers/Artists

As with freelance writers, companies often outsource graphic design or other artwork to
independent graphic designers or artists. As long as you’re working for yourself and not
partnering with other artists, a sole proprietorship will be the perfect structure for your business.

Fitness Instructor

If you’re certified to teach yoga, fitness classes or you are a personal trainer, you can set up a
sole proprietorship to help others meet their fitness goals. However, because your work will
affect your clients’ health, you’ll need to have liability insurance. Be sure to check your state’s
specific requirements before launching your business, especially if you'll be working out of your
home.

Teach What You Know

If you have a special skill, teach it to others. People have long taught singing or musical
instrument lessons in their homes. You can adapt what they do and teach what you know. If
gardening is your thing, teach people how to create a backyard garden or take care of indoor
plants. Crafty people can give classes on scrapbooking, and sewing experts can teach
dressmaking or quilting skills. Other homemakers might be happy to take a yoga, cooking or
couponing class during the day. If you are uncomfortable having strangers in your home, look to
your local library or other city properties to see if they have facilities you can use.
Social Media Representative

Social media is becoming more critical to small businesses. If you’re social media savvy, put
those skills to work. Contact local small businesses that may not have the time or the knowledge
to carry out effective social media campaigns, and offer your ongoing services for a fee. Keep up
with Facebook and Twitter marketing techniques, and become familiar with other social media
sites, such as Foursquare and LinkedIn.

Meal Preparation and Delivery

Since homemakers already spend a fair amount of time in the kitchen, a meal preparation and
delivery service may be the thing to do. Cook homemade meals that are tasty and nutritious, and
then package them individually or family-style. This type of business should appeal to families
with two working parents who want to avoid fast-food dining.

Run a Bookkeeping Business

A bookkeeping business caters to the financial needs of other businesses. A bookkeeper posts a
company’s revenue, expenses and other financial data to an accounting system. This gives
businesses owners accurate financial information concerning their business. The financial
information maintained by a bookkeeper is used to prepare a company’s tax returns.

Provide Home Healthcare

The healthcare industry usually flourishes in both good and bad economic conditions. Many sole
proprietors seek to benefit from this stability by starting home healthcare businesses. Many of
these cater to senior citizens. Services may include cooking meals, cleaning homes and assisting
with hygiene needs.

Be a Financial Planner

Sole proprietors work as financial planners, offering their services to individuals and small
businesses. They help families plan for retirement, save for college expenses and invest in
securities. Financial planners catering to businesses may help a company set up its employee
retirement packages and other employee benefits.

Computer Repair Services

Computer repair companies are often operated as sole proprietorships. Some business owners
operate commercial shops, while others work from home. Small computer repair businesses
typically cater to individuals.
Run a Catering Company

Catering companies offer their services for parties, weddings, church functions and business
events. In most cases, a sole proprietor operating a catering company needs to hire employees.

Offer Housecleaning Services

The startup costs for a housecleaning business are generally low. Business owners can offer a
variety of additional services, such as laundry, window washing and carpet cleaning.

Offer Tutoring Services

Tutoring businesses provide learning assistance to students in a variety of subjects. Tutors may
work with students in person or through online video chats. Many tutors have teaching
experience or extensive knowledge in the subject they are teaching.

Be a Virtual Assistant

Virtual assistants help entrepreneurs with administrative functions through the Internet. The tasks
completed by virtual assistants depend upon the needs of clients. Common tasks may include
checking emails, creating excel spreadsheets and typing documents.

The sole proprietorship can also register as a Small and Medium Enterprise (SME) under MSME
Act, though it is not mandatory, it is beneficial to be registered under the same.

PARTNERSHIP

The term partnership, is used to mean a business structure wherein two or more
individuals, come together for undertaking a lawful business and have agreed
to share the profits and losses arising from it.

The management and operation of the business should be performed either by all
the partners or any of them, acting for all the partners.

In India, it is governed by the Indian Partnership Act, 1932 and is formed as per
the provisions of the act.

It is started through a legal agreement between partners, called as partnership

deed - CLAUSE

there are three main categories of partnership: general partnership, limited partnership, and
limited liability partnership.
A general partnership comprises two or more owners to run a business. In this partnership, each
partner represents the firm with equal right. All partners can participate in management
activities, decision making, and have the right to control the business. Similarly, profits, debts,
and liabilities are equally shared and divided equally.

In other words, the general partnership definition can be stated as those partnerships where rights
and responsibilities are shared equally in terms of management and decision making. Each
partner should take full responsibility for the debts and liability incurred by the other partner. If
one partner is sued, all the other partners are considered accountable. The creditor or court will
hold the partner’s personal assets. Therefore, most of the partners do not opt for this partnership.

Limited partnerships are a hybrid of general partnerships and limited liability partnerships. At
least one partner must be a general partner, with full personal liability for the partnership's debts.
At least one other is a silent partner whose liability is limited to the amount invested. This silent
partner generally does not participate in the management or day-to-day operation of the
partnership. The general partner has unlimited liability, manages the business and the other
limited partners. Limited partners have limited control over the business (limited to his
investment). They are not associated with the everyday operations of the firm.

In most of the cases, the limited partners only invest and take a profit share. They do not have
any interest in participating in management or decision making. This non-involvement means
they do not have the right to compensate the partnership losses from their income tax return.

Limited liability partnerships (LLPs) are a common structure for professionals, such as
accountants, lawyers, and architects. This arrangement limits partners' personal liability so that,
for example, if one partner is sued for malpractice, the assets of other partners are not at risk.
Some law and accounting firms make a further distinction between equity partners and salaried
partners. The latter is more senior than associates but does not have an ownership stake. They are
generally paid bonuses based on the firm's profits.

Characteristics
Indian Partnership Act 1932

Most of the businesses in India adopt a partnership business, so to monitor and govern such
partnership The Indian Partnership Act was established on the 1st October 1932. Under this
partnership act, an agreement is made between two or more persons who agrees to operate the
business together and distribute the profits they gain from this business.

ADVANTAGES

. Easy Formation – An agreement can be made oral or printed as an agreement to enter

as a partner and establish a firm.

 Large Resources – Unlike sole proprietor where every contribution is made by one
person, in partnership, partners of the firm can contribute more capital and other
resources as required.
 Flexibility – The partners can initiate any changes if they think it is required to meet the
desired result or change circumstances.
 Sharing Risk – All loss incurred by the firm is equally distributed amongst each partner.
 Combination of different skills – The partnership firm has the advantage of knowledge,
skill, experience and talents of different partners.

DISADVANTAGES

1. Unlimited liability
2. Risk of disagreement between partners
 3. Instability of the partnership

Procedure for Registering a Partnership Firm

Step 1: Application for Registration

An application form has to be filed to the Registrar of Firms of the State in which the firm is
situated along with prescribed fees. The registration application has to be signed and verified by
all the partners or their agents.

The application can be sent to the Registrar of Firms through post or by physical delivery, which
contains the following details:

 The name of the firm.

 The principal place of business of the firm.
 The location of any other places where the firm carries on business.
 The date of joining of each partner.
 The names and permanent addresses of all the partners.
 The duration of the firm.

Step 2: Selection of Name of the Partnership Firm

Any name can be given to a partnership firm. But certain conditions need to be followed while
selecting the name::

 The name should not be too similar or identical to an existing firm doing the same business.
 The name should not contain words like emperor, crown, empress, empire or any other words
which show sanction or approval of the government.

Step 3: Certificate of Registration

If the Registrar is satisfied with the registration application and the documents, he will register
the firm in the Register of Firms and issue the Registration Certificate. The Register of Firms
contains up-to-date information on all firms, and anybody can view it upon payment of certain
fees.

An application form along with fees is to be submitted to the Registrar of Firms of the State in
which the firm is situated. The application has to be signed by all partners or their agents.

Documents for Registration of Partnership

The documents required to be submitted to Registrar for registration of a Partnership Firm are:

 Application for registration of partnership (Form 1)

 Certified original copy of Partnership Deed.
  Specimen of an affidavit certifying all the details mentioned in the partnership deed and
documents are correct.
 PAN Card and address proof of the partners.
 Proof of principal place of business of the firm (ownership documents or rental/lease
agreement).

If the registrar is satisfied with the documents, he will register the firm in the Register of Firms
and issue a Certificate of Registration.

Register of Firms contains up-to-date information on all firms and can be viewed by anybody
upon payment of certain fees.

Name Given to the Partnership Firm

Any name can be given to a partnership firm as long as you fulfil the following conditions:

 The name shouldn’t be too similar or identical to an existing firm doing the same business,
 The name shouldn’t contain words like emperor, crown, empress, empire or any other words
which show sanction or approval of the government.

Partnership Deed

A partnership deed is an agreement between the partners in which rights, duties, profits shares
and other obligations of each partner is mentioned. A partnership deed can be written or oral,
although it is always advisable to write a partnership deed to avoid any conflicts in the future.

Details Required in a Partnership Deed

General details

 Name and address of the firm and all the partners.

 Nature of business.
 Date of starting of business Capital to be contributed by each partner.
 Capital to be contributed by each partner.
 Profit/loss sharing ratio among the partners.

Specific details

Apart from these, certain specific clauses may also be mentioned to avoid any conflict at a later
stage:

 Interest on capital invested, drawings by partners or any loans provided by partners to the firm.
 Salaries, commissions or any other amount to be payable to partners.
 Rights of each partner, including additional rights to be enjoyed by the active partners.
 Duties and obligations of all partners.
  Adjustments or processes to be followed on account of retirement or death of a partner or
dissolution of the firm.
 Other clauses as partners may decide by mutual discussion.

Timelines for Partnership Firm Registration

The partnership firm registration process takes approximately 10 days, subject to departmental
approval and reverts from the respective department.

Checklist for Partnership Firm Registration

 Drafting of Partnership Deed.

 Minimum two members as partners.
 Maximum of equal to or less than twenty partners.
 Selection of appropriate name.
 Principal Place of business.
 PAN card and bank account of the firm.

Registering ONLINE

[Link]

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Meaning of (LLP)

• LLP is a corporate business vehicle that provides the benefits of limited

liability of a company to its members and also allows managing their
 internal management on the basis of mutually arrived agreement as in case
of a partnership firm. Partners have lower liabilities to any debt which may
arise in future in running the business.
• It contains elements of both ‘a corporate structure’ as well as ‘a partnership
firm structure’ and is called a hybrid between a company and a partnership.
• The Partners are required to contribute towards the LLP as specified in the
LLP Agreement. Their share can be in any form i.e. tangible or intangible,
movable or immovable property, monies and cash.
• In terms of liability under Limited Liability Partnership the Company is
liable for losses or debts if arise in running the business where the individual
members of the LLP shall not be liable for such losses or debts.
• Limited liability partnerships (LLPs) allow for a partnership structure where
each partner’s liabilities are limited to the amount they put into the business.
• Having business partners means spreading the risk, leveraging individual
skills and expertise, and establishing a division of labor.
• Limited liability means that if the partnership fails, then creditors cannot go
after a partner’s personal assets or income.
• LLPs are common in professional business like law firms, accounting firms,
and wealth managers.
• In LLP the partners have the right to manage the business directly, unlike
corporate shareholders.
• The important difference from that of traditional partnership is that a partner
in LLP is not responsible for the misconduct or negligence of another
partner.
• LLPs allow for a partnership structure where each partner’s liabilities are
limited to the amount they put into the business.
 Features of LLP

o It is a renowned form of Business.

o LLP is generally formed to carry on a lawful business, defined to include
any trade, business, or profession.
o The cost of incorporating LLP is very low.
o The minimum requirement of partners is two.
o There is no such requirement for minimum capital contribution.

o Changes in the partners of an LLP shall not affect the rights, liabilities, and
existence of the LLP.
o LLP can acquire, hold, develop, or dispose of a property.
o LLP can sue, can be sued, and may possess a common seal and do such
acts as body corporate are lawfully allowed to do.

o LLP limits the liability of its partners.

o The mutual rights and duties of LLP and its partners are governed through
LLP agreement between the partners or the LLP and its partners.

Process of Registration

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Step 1: Digital Signature Certificate (DSC)- Since all the documents for LLP
registration are filed online, DSC is necessary for all the designated partners.
Step 2: Director Identification Number- It is necessary to apply for the DIN of
all the designated partners or those intending to be designated partners of the
proposed LLP.

Step 3: Reservation of Name- MCA Portal system provides the list of closely
resembling names of existing companies/LLPs based on the search criteria filled
up. It is necessary to file for the reservation of the name of the proposed LLP in
Form 1.

Step 4: Incorporation of LLP- Form 2 is the application form for the

incorporation of the LLP.

Step 5: File Limited Liability Partnership Agreement– LLP agreement is filed

in Form 3 on the MCA Portal.

ADVANTAGES OF LLP

• Low cost of formation

• Easier management
• No minimum capital contribution is required
• No restriction as to the maximum number of partners
• Less compliance requirement
• Less Government intervention
• Multidisciplinary Professional LLP can be registered which wasn’t allowed
earlier
• The audit requirement is only in case of contributions exceeding Rs. 25 lakh
or turnover exceeding Rs. 40 lakh
• Easy to dissolve or wind-up

Disadvantages of LLP

LLP formation is not allowed for non-profit objectives and purpose.

Money cannot be raised from the public.

One designated partner should be a citizen of India.

LLP provides for two partners, thus in case it has to be converted into a Private
Limited, there have to be seven partners according to the Companies Act, 1956
Joint Stock Company
Joint Stock Company is one of the most important forms of organizational
structure. Today, numerous businesses have organized themselves as joint-stock
companies.

A joint-stock company is a business owned by its investors, with each investor

owning a share based on the amount of stock purchased.

Joint-stock companies are created in order to finance endeavors that are too
expensive for an individual or even a government to fund. The owners of a joint-
stock company expect to share in its profits.

KEY TAKEAWAYS

 A joint-stock company is a business owned collectively by its shareholders.

  Historically, a joint-stock company was not incorporated and thus its
shareholders would bear unlimited liability for debts owed by the company.
 The shares of a joint-stock company are transferable. If the joint-stock
company is public, its shares are traded on registered stock exchanges.
Shares of private joint-stock company stock are transferable between parties,
but the transfer process is often limited by agreement, to family members,
for example.
 A modern corporation is a joint-stock company that has been incorporated in
order to limit shareholder liability.

1. Chartered Company: Formerly in Great Britain, the government, through the

Royal Charter formed companies for specific purposes, e.g. East India Company.
A chartered company is regulated by the terms of its charter. In India, such
companies are foreign companies.

2. Statutory Company: A company or corporation, formed by an act of the

legislature, is called the statutory company. Examples are the Reserve Bank of
India. Industrial Finance Corporation, Life Insurance Corporation, etc.

3. Registered Company: A company must be registered under the Companies

Act. After registration, the Registrar of Companies issues a certificate of
incorporation. After that, the company becomes a registered company. Broadly
there are two types of registered companies, such as:
 Limited Company: A limited liability company is a company whose liability of
each member is limited to the face value of the shares held by him and the capital
of the company is divided into a number of shares. This type of company is of two
types, viz-private limited company, and public limited company.

(a) Private Limited Company: A Private Limited Company means a company

which by its articles of associations:

 Restricts the right to transfer the shares;

 Limits the number of its members as specified in the relevant Companies
Act, excluding persons who are in the employment of the company; and
 Prohibits any invitation to the public to subscribe to the share or debentures
of the company.

 (b) Public Limited Company: It is a voluntary association of at least seven or

more persons, authorized and recognized under the law as a separate legal entity
apart from its owners who agree on the supply capital and share the profits and
losses. The shareholders are free to purchase or sell shares of the company. It can
make a public offer to issue shares or debentures of the company.

A public limited company may be of two types, viz. a company limited by shares
and a company limited by guarantee.

 Company Limited by Shares: In this company, there is share capital, and

each share has a fixed nominal value, which the shareholder pays at a time
or by installments. A shareholder is not liable to pay anything more than the
fixed value of the shares subscribed; whatever may be the liabilities of the
companies. Most of the companies in Bangladesh belong to this class.
 Company Limited by Guarantee: In Such a company, each member
promises to pay a fixed sum of money in the event of liquidation of the
company. This amount is called the guarantee. Sometimes the members are
required to buy a share of a fixed value and also give a guarantee for a
further sum in the event of a liquidation. There is no liability to pay anything
more than the value of the share (where there is a share) and the guarantee.

Unlimited company: In these companies, the liability of the shareholder is

unlimited as in partnership firms. Such companies are permitted under the
Companies Act but are non-existent. The personal property of the shareholders can
be used to meet the obligations, if necessary.
 Government: A company in which not less than 51% of the shares are held by the
Central or State Government or by a combination of Central or State Government
is a Government company.
 Non-Government: A company where the majority of the stake is owned by
private individuals/institutions is known as a Non-government Company.

FEATURES

1] Artificial Legal Person

• A company is a legal entity that has been created by the statues of law. Like
a natural person, it can do certain things, like own property in its name, enter
into a contract, borrow and lend money, sue or be sued, etc. It is operated
and maintained according to Companies act-1994.
• It has also been granted certain rights by the law which it enjoys through
its board of directors. However, not all laws/rights/duties apply to a
company.
• It exists only in the law and not in any physical form. So we call it an
artificial legal person.

2] Separate Legal Entity

• Unlike a proprietorship or partnership, the legal identity of a company and

its members are separate.
• As soon as the joint stock company is incorporated it has its own distinct
legal identity.
• So a member of the company is not liable for the company. Similarly, the
company will not depend on any of its members for any business activities.

1] Artificial Legal Person

• A company is a legal entity that has been created by the statues of law. Like
a natural person, it can do certain things, like own property in its name, enter
into a contract, borrow and lend money, sue or be sued, etc. It is operated
and maintained according to Companies act-1994.
• It has also been granted certain rights by the law which it enjoys through
its board of directors. However, not all laws/rights/duties apply to a
company.
• It can make a legal claim to others in its own name and vice versa.
 • It exists only in the law and not in any physical form. So we call it an
artificial legal person.

2] Separate Legal Entity

• Unlike a proprietorship or partnership, the legal identity of a company and

its members are separate.
• As soon as the joint stock company is incorporated it has its own distinct
legal identity.
• So a member of the company is not liable for the company. Similarly, the
company will not depend on any of its members for any business activities.

3] Incorporation

• For a company to be recognized as a separate legal entity and for it to come

into existence, it has to be incorporated.
• Not registering a joint stock company is not an option. Without
incorporation, a company simply does not exist.

4] Perpetual Succession

• The joint stock company is born out of the law, so the only way for the
company to end is by the functioning of law. So the life of a company is in
no way related to the life of its members.
• Members or shareholders of a company keep changing, but this does not
affect the company’s life.
• The retirement/insolvency/death of a shareholder does not affect the
continuity of the operations of the company.

5] Limited Liability

• This is one of the major points of difference between a company and a sole
proprietorship and partnership.
• The liability of the shareholders of a company is limited.
• The personal assets of a member cannot be liquidated to repay the debts of a
company.
• A shareholders liability is limited to the amount of unpaid share capital. If
his shares are fully paid then he has no liability.
• Only the companies assets can be sold off to repay its own debt. The
members cannot be made to pay up.
6] Own Common Seal

• A company is an artificial person. So its day-to-day functions are conducted

by the board of directors. So when a company enters any contract or signs
an agreement, the approval is indicated via a common seal. A common seal
is engraved seal with the company’s name on it.
• So no document is legally binding on the company until and unless it has a
common seal along with the signatures of the directors.

7] Transferability of Shares

In a joint stock company, the ownership is divided into transferable units known as
shares. In case of a public company the shares can be transferred freely, there are
almost no restrictions. A private limited company cannot transfer the shares.

8] Well managed:

The Board of Directors who manages the company is generally professional,

experienced, qualified, and efficient. This increases the probability of the company
is well managed.

9] The number of shareholders:

In the case of a public limited company, the number of shares of that company
restricts the maximum number of share holders and the minimum number is seven.
But in the case of a private limited company, the maximum number of
shareholders is fifty and a minimum two.

10] Tax payment:

In the case of a company, there are two systems of tax payment. First, on the basis
of profit earned by the company. Second, on the basis of dividend earned by the
shareholders.

11] Enough Capital:

Company has the opportunity to raise more capital than other forms of business
because the number of shareholders is huge. And if a company needs money it can
sell its shares to the public.

12] Separation of ownership from management and administration:

Partners in a firm are not only the owners but they also take part in the
management and administration of the business. But this is not possible in a joint
stock company where the number of owners is huge.

Advantages of Joint Stock Company

• In joint stock company the personal wealth is safe, they are encouraged to
invest in joint stock companies
• The shares of a company are transferable. Also, in the case of a listed public
company they can also be sold in the market and be converted to cash. This
ease of ownership is an added benefit.
• Perpetual succession is another advantage .
• The death/retirement/insanity/etc does affect the life of a company. The only
liquidation under the Companies Act will shut down a company.
• A company hires a board of directors to run all the activities. Very
proficient, talented people are elected to the board and this results in
effective and efficient management.
• Generally a Joint Stock Company has the opportunity to raise huge capital
than other types of business. If the company needs money it can sell its
shares to the public.
• The liability of a shareholder is limited to the face value of the shares he
holds. He has no further liability if he has paid the full value of the shares
that he has agreed to pay.
• Perpetual succession is another important advantage of joint Stock
Company. A joint-stock company survives, even if all members are willing
to shut down the company or if all members die in natural calamities.
• Shareholders have the right to sell the shares of a joint-stock company to
those who are interested to buy. This right to sell shares of joint Stock
Company gives scope to attract a large number of shareholders.
 • A company can secure the services of highly qualified persons who are
experts in different fields of business management. It is through the
company that the capital and business ability can be linked together for the
benefit of both the individual investor and the community as a whole.
• A company enjoys greater tax relief as compared to other forms of business
organizations. The company pays lower taxes on a higher income as it pays
tax on a flat rate. Moreover, a company gets some tax concessions, if it
establishes operations in a backward area. Some tax incentives are available
for export promotion also.
• Advantages of large-scale business: Since a joint-stock company has huge
capital and a large number of shareholders; it can invest in large-scale
production in order to meet the requirements of people at large.
• Stability is one of the most important advantages of company Shareholders
death, retirement, or sale of stock do not lead to the dissolution of the
business.

Disadvantages of Joint Stock Company

• The joint stock company has a complex and lengthy procedure ( including
legal requirements and documentation) for its formation. This can take up to
several weeks and is a costly affair as well.
• According to the Companies Act, 2013 all public companies have to provide
their financial records and other related documents to the registrar.
• A company must provide each shareholder with an annual report. When a
large number of reports are issued, the reports become public. These reports
present data on sales volume, profit, total assets, and other financial matters.
Public disclosure of these data enables competitors and other outsiders to see
the company’s financial condition.
 • This leads to a complete lack of secrecy for the company.
• And even during its day to day functioning a company has to follow a
numerous number of laws, regulations, notifications, etc. It not only takes up
time but also reduces the freedom of a company
• A company has many stakeholders like the shareholders, the promoters,
the board of directors, the employees, the debenture holders etc. All these
stakeholders look out for their benefit and it often leads to a conflict of
interest.
• The buying and selling of shares of a company is the only real control an
owner has. Since the number of shareholders is determined by the number of
shares of a company, control by the board of directors is difficult. There may
be a conflict of interest between different stakeholders such as owners,
employees, the Board of Directors, lenders, etc.
• In the case of a company, there are two systems of tax payment. First, on the
basis of profit earned by the company. Second, on the basis of dividend earn
by the shareholders. So the shareholders suffer from double taxation.
• In most corporations, except the small ones, management and ownership are
separate. This separation can result in a lack of personal interest in the
success of the company.
• Bank and financial institutions have to consider the fact of limited liability
of shareholders of a company. If a company fails, its creditors can look only
to the assets of the business to satisfy claims.

Important Points to Note about Change in Joint Stock Company

 A joint-stock company is a company that is owned by investors who have bought
shares in the company.
 The capital is represented by shares owned by its members.
 The business is generally conducted with the intent to make profits and the profits
are thereby shared by the owners in proportion to the shares held by them. These
shares are transferable without the consent of the other shareholders and such
transfer does not affect the continuation of the company.
 When a particular shareholder in a joint-stock company transfers his shares to
another, it does not affect the continuation of the company. Retirement, death, and
insanity of a particular member do not affect the company.
 A private company can be changed to a public company by carrying out
formalities given by law.
 The Memorandum of Association and Articles of Association, which are two
important documents, need to be amended if changes are to be brought in the
company.

REGISTRATION

A company comes into existence only when it is registered with the Registrar of
Companies.

 For this purpose the promoter has to take the following steps:
 (a) Approval of Name
 It has to be ensured that the name selected for the company does not match
with the name of any other company. For this, the promoter has to fill in a
“Name Availability Form” and submit it to the Registrar of Companies
along with necessary fees. The name must include the words(s) ‘Limited’ or
‘Private limited’ at the end. Once it is approved, the promoter can proceed
with other formalities for the incorporation of the Company.
 (b) Filing of Documents
 After getting the name approved the promoter makes an application to the
Registrar of Companies of the State in which the Registered Office of the
 company is to be situated for registration of the company. The application
for registration must be accompanied by the following documents.
 (i) Memorandum of Association (MOA): It defines the objectives of the
company and states about the range of activities or operation. It must be duly
stamped, signed and witnessed.
 (ii) Articles of Association (AOA). It contains the rules and regulations
regarding the internal management of the company. It must be properly
stamped, duly signed by the signatories to the Memorandum of Association
and witnessed.
 (iii) A list of persons who have agreed to become Directors with their
addresses etc.
 (iv) Written consent of the proposed Directors to act in that capacity, duly
signed by each Director.
 (v) The notice about the exact address of the Registered Office of the
company. It may, however, be filed within 30 days of incorporation or
registration.
 (vi) A copy of the name approval letter received from the Registrar of
Companies.
 (vii) A statutory declaration that all the legal requirements of the Companies
Act in regard to incorporation have been complied with.
 (c) Payment of Filing and Registration Fees
 Along with the above documents, necessary filing fees and registration fees
at the prescribed rates are also to be paid.
 The Registrar will scrutinise all the documents and if he finds them in order,
he will issue a Certificate of Incorporation. The moment the certificate is
issued, the company comes into existence. So this certificate may be called
as the Birth Certificate of a Joint Stock Company

Conclusion

Though joint-stock companies have their limitations, it makes immense sense to

organize into a joint-stock company especially if one needs to scale up a business.