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Starting a new venture? Keep these basics in mind. There are a few popular alternatives for new enterpreneur/s.

1. Proprietory Business
2. Partnership Firm
3. Limited Company

There is one common step involved in all new start-ups - deciding on a name and looking for a .com.

Why a .com? Because that is the way to go! Having an online presence is so simple and economical that even a paanwala in Mumbai, Muchchad paanwala, has his website! Even if you don’t want to build a web-site, its looks pretty professional if your visiting card and other stationery has an email address like yourname@yourcompany.com. You can check the availability of a .com domain name at mailnspace

If the .com is not available, look for the country specific domain .in, .co.in, etc. If none are available, you may also consider other Top Level Domains (TLDs) like .info or .biz. However, none of these carry the weight of a .com or a .in. If the exact domain name of your company is not available, try variations like thecompany.com or companyindia.com or as a last resort change the name of the company! But in my opinion, it is pretty necessary to have a domain name that matches your comapny.

1. Proprietory Business (PropB):
This is the simplest form of business entity. Its very simple to start PropB. There are hardly any legal formalities involved. Have a rubber stamp made, open a bank account and your new business has started. All the best.

However, please bear in mind that depending on your type of business, turn over, profit, etc. you may need to go for registration under Service Tax, VAT, Excise, Income Tax (PAN & TAN), etc. PAN is used for filing your return of income and TAN is used for TDS returns. TDS stands for Tax Deducted at Source. To be on a safer side, consult your legal advisor, for ignorance of law is no excuse in violating it!

2. Partnership Firm (P’shipF):
You need to go through some legal formalities like documentation, registration, etc. to form a P’shipF.

First and foremost a Partnership Deed needs to be made. Provisions of the Indian Partnership Act, 1932 and Income Tax Act, 1961 must be considered while drafting the Deed. The Deed needs to be registered with Registrar of Firms. Registration is compulsory in Maharashtra, India. Check out the status in your city/state with your legal advisor. Consequences of non-registration could be fatal at times!

There are a couple of very important points to be kept in mind before deciding on a partnership.

One, as on today (15 Jan 2006) P’shipF are liable to pay 36.59% (35% + 2.5% Surcharge + 2% Education Cess) income tax on their net profit, which is higher than what is payable in case of individuals. So a certain amount of tax planning is necessary to bring down the net tax burden. One way of doing this is to provide for interest and salary to partners in the partnership deed.

Second, unlike limited companies, liability in the partnership is unlimited. That means that in case of loss, if the partnership assets are insufficient to pay the liabilities, even the personal assets of the partners may be attached/confiscated/sold to recover dues.

Third and the most important thing is that as per the Indian Partnership Act, 1932 each partner is an agent of the other partner! So if one partner takes a loan in the name of the partnership and disappears, the other partner/s will have to pay for it. This provision alongwith the provision of unlimited liability makes a partnership with stranger only a bit safer than gambling!

3. Limited Company (Co):
Out of all, this is the most complicated form of a new business. You have to first get your name approved from Registrar of Companies, then file a whole lot of papers and go through quite a bit of formalities. It is not possible to list out the complete procedure here because then this would not remain a blog and become a treatise. The Companies Act carries detailed provisions for the formation of the company. The procedure is more complex if you want to promote a public limited company.

Out of all the 3 options, this option is the most expensive tax wise (mainly because of dividend distribution tax) and requires the most number of legal formalities to be observed. But the most appealing part of this option is limited liability. If the company runs into losses, no one can look to your personal assets for recovery.

Please note that these are just broad guidelines. Although what is mentioned above is legally true as on today (15 Jan 2006), I am not responsible for anything that you do on the basis of these. I strongly recommend you consult a professional for all the legal formalities and advice. This is not intended to substitute personal advice which is inevitable.