Linkage Between Private Limited Company and Startups
Start any business always brings so many confusion and out of those confusions, the form of business entity always puzzle startup to take further steps. But sometimes confusion itself bring some sort of unique solution to the given problem and force us to think to produce better results.
We at registrationwala receive almost half of the times queries regarding the form of business entity to launch the business venture because starting of anything is always crucial. That's why it is said that well begin is half done.
Every startup at its initial level conscious about the cost due to liquidity crunch because at the initial level there is hardly any earning for business source and the owner usually spends money out of their own pocket which is more panic situation for the owners. Due to a shortage of funds, they try to invest every single penny on right things. Therefore, being conscious about the form of business is quite expected.
Normally young entrepreneur confuses among the private limited company, limited liability Partnership (LLP) or one person company (OPC). And let me give very honest view while dealing with clients at registrationwala, most of the entrepreneurs is not aware of legal jargon. They just come up simply with an Idea without knowing anything that how to and from where to start. So, it would be good to introspect and ask the following questions before reaching to any firm decision:
- How much compliance burden you can face? For a startup, it is very pertinent question that how you would going to manage compliance aspect in the business because companies have to file their financial statements which include balance sheet, P/L A/c, the annual return which belongs to particular financial year.
- How you maintain business terms with your business partner? This is again very pertinent question because this is also a relevant criterion to choose the form of business entity. If you open a private limited company then the owner will be shareholders whereas if they incorporate LLP, then they become partners. How they contribute to the business is always a relevant question.
- Funds requirement in future. This too has to be kept in mind at the outset to avoid the future issues.
These are some of the relevant questions which must be asked by an entrepreneur to himself to make a concrete plan.
Few factors which lure the entrepreneur to start private limited companies:
- Foreign Direct Investment in a private limited company:
For private limited companies, the door of FDI is open. It means that private limited companies can accept the FDI.
- Listing of shares in future:
If there seem good prospects about private limited company then the promoters can ponder to convert it into public limited company to get its shares listed on the stock exchange, but this can not be possible in case of an LLP because there is no clarity whether the LLP can be converted into private/public limited company or not.
Making a choice about the business entity is much more important than thinking about the cost of formation. Though the cost of registration LLP or OPC is much lesser than incorporating private limited company but the advantages of the private limited company always outweigh its cost.