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Types of Organisational Structure in India

SAHU & ASSOCIATES: Types of Organisational Structure in India
For Entrepreneurs and Start-Ups


In India entrepreneurs/start-ups enjoys a wide range of choice when it comes to establishing their organisation. Here we will try to understand some most popular types of organisational structures under which a person/group of person can register their legal entity.

1. PROPRIETORSHIP: A proprietorship organisation also known as sole proprietorship is an organisational structure that is owned and managed by one person. In this entity there is no legal distinction between the owner/proprietor and the business, in it the sole owner and there organisation is considered a single entity for tax liability and are personally liable for the debt from the business. The owner does not pay income tax separately for the company, but he/she reports business income or losses on his/her individual income tax return.

2. PARTNERSHIP: It is a structure that is owned and managed by two or more individuals. In partnership group of likeminded people join hands to achieve a common objective on mutually agreed terms and conditions. Here partners/owners are personally liable for the debt from the business, but the organisation pays income tax separate from its owners. The partners can withdraw money in the form of salary, interest on capital and profit of the organisation. In India partnership firms are governed by The Partnership Act.

3. LIMITED LIABILITY PARTNERSHIP: A limited liability partnership more commonly known as LLP is exhibits properties of both partnership and a company. Unlike partnership in LLP partners don't have personal liability beyond their investment in the LLP and unlike company LLP is less regulated. LLP compulsorily needs to be registered with the registrar of company (ROC) after following the provisions specified in the LLP Act. In depth details about LLP is available at http://www.mca.gov.in/LLP/faq_llp_basic_concept.html

4. COMPANY: A company is voluntary association of natural person, legal person (i.e. other legal entity) or a mixture of both formed to carry on a business. In a company members contribute money or money's worth to a common stock and employ it in some trade or business and who share the profit and loss arising there from. The common stock so contributed is denoted in money and is the capital of the company. On incorporation a company becomes separate legal entity as compared to its members. Members of a company have limited liability and company is managed by its managerial persons i.e. Directors. The shareholders are simply the holders of the shares in the company and need not be necessarily the managers of the company. In India there are three types of company:

a. One Person Company (OPC): OPC is a concept introduced in India from April'14 which allowed one person (natural person only) to incorporate a company and manage it by themselves. This concept has allowed sole proprietorships and entrepreneurs to enjoy the advantages of limited liability and separate legal entity. OPC enjoys many exemptions in legal compliances as compared to other types of company. In depth details about LLP is available at http://www.mca.gov.in/MinistryV2/OPCfaq.html

b. Private Limited Company: Private limited company can be incorporated with minimum share capital of Rs.1,00,000/- and with minimum of two members. Private limited company has some restrictions on transfer of share to public and maximum number of members in private limited company is also limited to 200. But at the same time private limited organisation enjoys many relaxation in legal compliances and fillings as compared to public limited company.

c. Public Limited Company: Public limited company can be incorporated with minimum share capital of Rs.5,00,000/- and with minimum of seven members. In this type of organisation shareholders can transfer their shares freely. Company can raise fund by issue of debentures or shares. There is no maximum limit for number of shareholders in public company.



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Types of Organisational Structure in India