Different ways to do a Business

What if an brilliant idea strikes your brain and you are all set to (optionally quit your job) and start a business of your own?
Legally speaking, how can a person engage in a Business?

There are three principal forms, each with minor variations:
1. Sole Proprietorship: This is the oldest and simplest form of doing a business. You are the only owner and you can claim all the profits and you will be liable for any losses your business makes. Since the profits are part of your individual income, all the tax you pay is your individual (personal) income tax. This is best advantage of a Proprietorship - other forms of business are taxed twice as explained later. Since yours is not a company, you cannot hire employees officially, but what you can do is to enter into contracts with other people who will help you in carrying out your business. Grocery stores are the best examples of Sole Proprietorship.
More info: http://business.gov.in/starting_business/sole_proprietorship.php

2. Partnership Firm: A group of people, called partners, enter into a partnership to do a business . Both, registered and unregistered partnerships are legal. Its easier to approach a court in case of conflicts, convince income tax officials, sue and get sued if the partnership is registered. Important in this form of business is the "partnership deed" which specifies the terms and conditions such as ownership percentage, sharing of profits and losses, roles and responsibilities such as working partner, investing partner, etc among partners. Income from partnership is taxed twice - once on the profits the partnership firm makes, then as individual income tax on the profits the partners receive. A partnership can hire employees. By default, partners have unlimited liability, unless registered as a Limited Liability Partnership (LLP). Business like large stores, franchises like pizza hut outlets or shell petrol pumps, etc are examples of partnerships.
More info:
http://business.gov.in/starting_business/org_partnership.php
http://business.gov.in/starting_business/limited_liability.php

3. Corporation: This is the biggest form of business and has many variations such as Private companies and Public Companies. Corporations are by default a limited liability business - investors or owners are liable and can lose only the investment they make in the business when the business closes down. Starting a company is a cumbersome activity and has many compliance and regulatory issues. At the same time it provides a strong framework in which the interests of investors, employees and customers are safeguarded. From a legal perspective, a company is an independent person with legal existence which is distinct from its owners. It is born when the company is registered. Its ownership can easily change hands by trading of shares. Corporation is also taxed twice, corporate tax on the corporation, income tax on salaries of the employees and profits of investors.
Will explain more about a corporation, its history, types, advantages, etc in later blogs..

Indian Law recognizes the following types of ways to do business:
> Proprietorship
> Private Limited Company
> Partnership Firm
> Co-operatives
> Public Limited Company
> Joint Hindu Family Business
> Limited Liability Partnership

QUESTIONS????

Why does name of a Company end with Pvt Ltd or Limited?

Ever wondered why the names of companies end with "Pvt Ltd" or "Limited" - for eg: IBM India Pvt Ltd or Reliance Industries Limited?

When someone or some group of people start a company, they pool in some money. The new company does business with this money that is pooled in by the so called investors or promoters. Then the company grows by taking new loans from the bank, entering into service contracts with other companies or people etc.

Now due to unforeseen circumstances if the company makes colossal losses or goes bankrupt and needs to be shutdown, the LAW guarantees the PERSONAL WEALTH of the investors (stock holders) will not be attacked to compensate the losses (debt) accumulated by the company. The liability of the investors is LIMITED - all they have to part with is just the money they had pooled in when the company was started. Thus to make the public aware that a liability of a company is limited, the words Pvt Ltd (Private Limited) in case of the Private Company or Limited in of a Public Company is suffixed to the name. This is mandatory by LAW.

Eg, Mukesh Ambani starts a new company "Ambani Technology Private Limited" and invests 10 cores in the company borrows another 20 cores from the bank and the company shuts down after a couple of months - the total loss of 20+ crores to the bank is not compensated by attacking Ambani's personal wealth. The Bank can only recover 10 crores (from Ambani's initial investment) (some of it might be spent though) and the money obtained from selling any assets of the company like the buildings, patents, etc...

In short, the investors of a company are only liable to investment in the company and not their personal wealth - hence the suffix Limited to the name of a company.

Business Laws

Hi Folks,

Professionally, I've been a techie till now. And i am kind of adding a new dimension to my career - I am embarking on a study of Business Laws :-)

I am presently surprised by the new things i exploring in my new adventure. I am coming across things that touch our daily lives like companies we work for, stocks and mutual funds we invest in - in pursuit to make qucik bucks, the insurance we buy - just to save tax, oh and the tax we pay out (and sometimes whine about - seeing our inefficient government systems), etc, etc. These things are with us day in and day out - just like the code we write, bugs we fix, defects we open - but we hardly know anything about them.

What i have decided to do - atleast thought of doing - is to list out some of my learning in laymen language. I know that most techies find this very disinteresting, but its nice to know little about the dimension of legal and business environment we live today :-)