InvestorQ : For my start-up business, what is the ideal business structure that you would suggest? Should I opt for partnership model or private limited company?
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For my start-up business, what is the ideal business structure that you would suggest? Should I opt for partnership model or private limited company?

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Anamika Sodhani answered.
12 months ago
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There are no off-the-shelf answers to this question because it would largely depend on what you want and the kind of business you intend to run. But broad, there are four critical factors to look into while choosing to incorporate a business entity.

· If you need to get the benefit as a person of business losses, then look for a pass-through structure. In this case, you must look at how to report losses and profit of business in your personal tax returns. This will ensure that you are taxed on the net earnings from the business. You can select a pass-through structure like partnerships, sole proprietorships and LLC in India. However, if you want to make the best of lower corporate tax rates, then you can opt for the private limited or public limited structures. The business legal structure holds essential effects on the tax amount you pay. A sole trader can enjoy the tax benefits by claiming on a personal tax return whereas a trust does not need to pay income tax on profits.

· The second consideration is risk. By default, any business is inherently risky. The focus here must be to insulate your personal assets from corporate liabilities. In this case, you must consider a corporation or LLC as it can effectively insulate personal assets of the owner from litigations and creditor attachment.

· Are you willing to invest a lot of time in compliance, documentation, record keeping, submissions etc then structures like LLCs and corporations are fine for you. Also, the dos and don’ts in a corporate or LLC structure are much higher including requirements like AGMs, minutes etc.

· Finally, how much of control do you want to exercise on the business? If you want to manage the company as an individual, then you should opt to stay as a sole trader. If you are willing to share control with close family, friends, partners; then partnership is ok. If you are willing to run the business in true blue democratic style, then only you must look at LLC or private limited companies.

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