Starting a new venture in India

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.

15 comments

  1. hi.. i am planning to start an online company. It will be a solution providing firm in robotics and embedded systems… but i am not getting a start. so being a fresher, need your suggestions… thank you..

  2. Hi Varun,

    A website will have to have an owner. That owner could be an individual or a partnership firm or a limited company or ……

    So you have to first decide about who is going to be the owner, float/form that company and then start the website process.

    Regards.

    Ashish.

  3. I am planning to start a business in MP which will function in areas like Greeting Card Import and selling, Direct Mail/Coupon, Debt-Collection Services, Supplier of food and grains, Product promotion etc…and many more things which i feel would be low budgeted services for people….Please suggest possible names for company(in hindi preferably), procedure for registering the business, and any experience in those fields if you have. Any person willing to join will be welcomed…

  4. Hi Jay,

    You need to register for a service tax number when the gross receipts (RECEIPTS, not INCOME) exceed 8 lacs and start paying service tax when it exceeds 10 lacs.

    It is always safer to take some professional advise.

    Regards.

    Ashish.

  5. Hi ,

    I am Jay from Ahmedabad. I and my two other friends are planning to start a new software partnership firm. We would mainly cover freelancing and a website for which we are planning to get some sponsors.
    We can register as a Partnership Firm. But do we need a service tax number to avoid any legal controveries while getting sponsorship.
    Thanks.

  6. Laws are different in every part of India. My post above is generic guideline. You need to take care of finer details. I suggest you consult a local legal advisor.

  7. Thanx for the info.However I plan to start a venture in Chattisgarh dealing with brown rice.Could you give me a bit more elaborate advice. Regards

  8. Hi Vandana,
    Thats a great undaunted spirit. Do get in touch me. I am planning to start something on my own in mobile Value added Services.

  9. can we discuss some pros and cons, like u might have experienced some while starting this site.

    would u like to share some.

    I had always seen myself making millions, its the image for myself in my mind and i am looking for opportunities.I don’t want to work 9-6 and at the end of day managing finances to pay EMI’s, Children education and all.

    I want to go beyond that and its not that i want, its vandana for me.I am a person who can always take risk to look beyond boundries and tell the open sky,yes its me.

    I am the person who knows how to motivate others. 😆 .

  10. Hi,

    A new business isn’t just about financial gains or freedom. Also consider the risks involved in the process. It can also saddle you with losses!

    I am not being pessimistic, but you must consider all the pros and cons before venturing. 🙂

    Ashish.

  11. Hi,
    I was going through this.
    It was my yesterday’s night dream to start a new venture,as i heen viewed some site and people are earning like anything 😎

    Not even earning its like achiving financial freedom.

  12. I assume that by “Joint Stock Company” you mean a Limited Company and not Joint Ventures. If its a joint venture, it can be partnership or a limited company depending on the projected scale of opertion and various other factors.

    The procedure for formation of a limited company is comparatively little complex. As I have already mentioned it is not possible to give a step by step guide here.

    There is a Registrar of Company in every state (of India). You are requested to contact some legal advisor personally in the state where you wish to have the registered office. The process starts with application for approval of name.

  13. I was just going through your site. It is very useful. It would be appreciated if you could send me in detail the procedure involved in the formation of a joint stock company.

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