TLDR;
This video is the first episode of Labour Law Advisor's "Business Basics" series, which aims to guide aspiring and current business owners through the complexities of starting, managing, and scaling a business in India. It addresses the crucial initial question of choosing the right type of business entity, comparing proprietorships, partnerships, private limited companies, LLPs, OPCs, and HUFs. The video covers registration processes, naming conventions, legal liabilities, tax implications, and suitability for different business types, offering practical advice and a bonus tip on leveraging HUFs for tax savings.
- Choosing the right business entity is crucial for legal, financial, and operational reasons.
- Proprietorships and partnerships offer simplicity but come with unlimited liability.
- Private Limited Companies, LLPs, and OPCs provide limited liability but involve more complex compliance.
- HUFs offer tax benefits for Hindu, Sikh, Jain, and Buddhist families.
Introduction to Business Basics Series [0:00]
The host introduces the "Business Basics" series, designed to assist individuals in starting and scaling their own businesses. The series aims to provide tutorials and information beneficial for both current business owners and those planning to start a business in the future. The first episode focuses on helping viewers decide which type of business entity to register, covering proprietorships, partnerships, private limited companies, One Person Companies (OPCs), and Limited Liability Partnerships (LLPs), along with a sixth, lesser-known entity.
Host's Background and Series Approach [2:01]
The host shares his extensive background in consulting businesses for 50 years and having started and scaled multiple businesses across various sectors. He emphasizes that the series will combine personal experience, thorough research, and insights from industry experts to provide practical and easily understandable guidance.
Overview of Business Entities [2:58]
The video outlines the five common business entities available in India: Proprietorship, Partnership, Private Limited, Limited Liability Partnership (LLP), and One Person Company (OPC). It briefly explains that proprietorships involve a single owner with no registration needed, while partnerships are formed through a partnership agreement. The remaining three entities fall under the Ministry of Corporate Affairs (MCA), with Private Limited and OPC governed by the Companies Act 2013 and LLPs by the LLP Act 2008, all offering limited liability to their promoters.
Registration Requirements for Different Entities [4:07]
The video details the registration requirements for each type of entity. Proprietorships require no registration to start, but a Shop and Establishment Act license or Udhyam registration may be needed to open a current account under a specific business name. Partnership firms require a partnership deed, which can be registered or unregistered, although registration is mandatory for owning immovable assets. Private Limited, OPC, and LLP registrations are more complex and typically require professional assistance through the MCA website. The host advises against obtaining a GST registration solely for opening a current account, as it may increase costs and compliance burdens unnecessarily.
Naming Conventions for Business Entities [6:11]
The video explains the rules for naming a business entity. Proprietorships have the most flexibility, but cannot use terms like "Private Ltd," "LLP," or "OPC." Trademarked names are prohibited across all entity types. Entities registered under the MCA require name approval, which can be challenging due to the large number of existing registered companies (approximately 2.7 million). The host suggests using longer names with three to four words to increase the chances of approval.
Odoo Sponsorship [8:04]
The host introduces Odoo, an open-source ERP software, as a tool to simplify business management. Odoo offers over 70 integrated applications for invoices, payments, inventory, website management, and business reporting. Users can access one application for free with unlimited hosting and support, with options to customize and add more applications via subscription as the business grows.
Legal Liability of Business Entities [8:56]
The video discusses the critical aspect of legal liability. Proprietorships and partnerships have unlimited liability, meaning personal assets are at risk in case of business debts or losses. Private Limited companies, LLPs, and OPCs offer limited liability, protecting personal assets from business liabilities, with recovery generally limited to the company's assets.
Number of Members in Business Entities [10:51]
The video specifies the number of members required for each entity type. Proprietorships have only one person. Partnership firms can have up to 20 partners. Private Limited companies require a minimum of 2 directors and 2 shareholders, with a maximum of 15 directors and 200 shareholders. LLPs need a minimum of 2 partners with no maximum limit. OPCs require one director and a nominee director to ensure perpetual succession.
Tax Implications for Different Entities [11:39]
The video explains the tax implications for each entity. In proprietorships, the owner's PAN card is used, and business income is added to their personal income, taxed according to their slab rate. Partnerships are taxed at a flat rate of 30%. Private Limited companies, LLPs, and OPCs can have taxation done at 30% or lesser, depending on various factors. Private Limited structures may offer more tax-saving opportunities if profits are retained within the business.
Bonus Tip: Avoiding Unnecessary GST Registration [12:40]
The host advises against obtaining GST registration solely to open a bank account. Given the government's GST registration limit of ₹40 lakhs for typical businesses, registering prematurely can increase costs and compliance burdens. Waiting until the business approaches this limit is recommended to avoid unnecessary complications.
Choosing the Right Entity for Your Business Type [13:31]
The video provides guidance on selecting the appropriate business entity based on the business type. Proprietorships are suitable for small retail shops, clinics, consultancies, and service-related businesses with minimal loans or funding. Partnership firms are appropriate when multiple individuals are involved in the same business. For startups planning to raise funding, a partnership firm can be a good initial choice before converting to a Private Limited company. Private Limited companies are best for high-risk ventures requiring external capital, loans, international expansion, or ESOPs. LLPs are suitable for service companies and consultancies where trust is important but significant funding is not required. OPCs can be used for slightly riskier retail businesses or franchises when there is no partner.
Expenses and Compliances [17:55]
The video discusses the expenses and compliance requirements associated with each entity. Proprietorships have the least expenses, followed by partnership firms. LLPs and OPCs have relatively higher expenses and moderate compliance, while Private Limited companies have the most compliance requirements.
Bonus Tip #2: Hindu Undivided Family (HUF) [18:53]
The host introduces the Hindu Undivided Family (HUF) as a business entity, which is less commonly known. HUFs can be formed by Hindu, Sikh, Jain, and Buddhist families, with no registration required. HUFs are treated as separate persons for tax purposes, offering the same tax benefits and exemptions as individuals.
Call to Action and APEs Community Introduction [20:15]
The host encourages viewers to like and share the video, comment with suggestions for future episodes, and check out Odoo. He also introduces APEs (AI Powered Entrepreneurs), a founder's-only community focused on networking, learning, and growth, aimed at helping entrepreneurs convert ideas into scalable businesses. The community charges a nominal commitment fee of ₹199 for the first 1,000 members.