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Full Analysis on Proprietorship, Partnership firm, Private Limited Company, LLP - YouTube
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Hello guys & welcome to the first lesson of "One Man Business Army"
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I have made this course or lesson,
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So that I can overall develop a businessman,
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The first lesson of our course is about,
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The difference between, sole proprietor, partnership, & private limited,
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Or in between LLP or Public limited,
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So, I have kept this as first lesson because, generally when we start business,
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The first challenge comes in our mind is this, that how should I start,
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Should I make partnership, or should I start alone, what is LLP, what is private limited,
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What are the benefits, what are the advantages, what are the disadvantages?
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We don't know that, so that's why I thought,
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If our foundation of business is strong,
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Then only our business is going to be great in future,
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So that's why if first we are able to understand the difference in between,
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That what are the benefits, what are the advantages & disadvantages,
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If we understand all that, only after that, we can do our business in better way,
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So before understanding the difference,
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First let us see its identification,
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That how should we identify, that which company is of what kind,
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So, we can only identify by its name, now how can we identify by name,
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Like the partnership or sole proprietor, there are no regulations for name,
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So, you can keep any name,
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like Ram & Shyam Company, Ram & Shyam associates, Ram & Shyam enterprise,
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anything you can keep as name
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In partnership & sole proprietor,
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If we talk about LLP, then in LLP, the name should contain LLP in the end,
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Ram & Shyam LLP, so if LLP is kept in last then the company is going to be a LLP,
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In case of private limited, it should contain Private limited in last,
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In case of public limited, it should have limited in the end,
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Now lets us pull out one from these 5 i.e., public limited,
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Because we have to public limited only when
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Our business got to a very good level, in which our turnover gets so high,
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So, when we have to trade it publically, & if we want to talk it anywhere in publically,
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Or if we want to increase shareholders, or have to register it publically,
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So initially for business purpose, it is not that important,
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So, we will cover these 4 in this video,
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Sole proprietorship, partnership, LLP& private limited, we will cover these,
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& Will understand all 4, but public limited, as such is not that important initially,
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As I said that when we go for listing our company, then it is needed,
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So let us now understand the difference of all 4,
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So that you can be able to understand the benefits or advantages & disadvantages,
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So let us understand it one by one
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So first if we talk about that wonder which act, this applicability comes,
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That if I want to make proprietorship, proprietorship means individually,
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I mean I want to run it alone,
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If I want to make partnership, or if I want to make LLP or private limited company,
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So, in which Act this is written,
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So, for sole proprietor, i.e., individual, so there is nothing written in any act,
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If you want to start your business form tomorrow
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Then you can start it form tomorrow,
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But if you want to start under partnership,
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Then "Indian Partnership Act 1932" comes in role, & you have to do its compliances,
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You have to look at it, & you have to run your business according to that,
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After that private limited company, then 鈥淐ompanies Act 2013" comes in play,
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You have to do its compliances,
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In the case of private limited company,
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& In LLP, "LLP Act 2008" is applicable,
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You have to check it, & accordingly have to do compliances,
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After that the incorporation or registration,
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If you want to be sole proprietor, or individual,
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Then there is no need of registration,
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A lot of people come to me, & say they want to start business,
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So, get me this registration,
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What registration?
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If you want to individually start a business, if you want to purchase & sell any item,
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Then according to GST if your turnover is not more than 40 Lakh,
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Then there is no need of GST registration,
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So initially at the time of starting up, you don't need any such registration,
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You can individually start it anytime you want to,
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And about partnership act, then you have to just make a partnership deed,
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If you want to then you can register it or it's up to you,
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If you will register it then it鈥檚 a good thing,
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As it will then be seen under law things,
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If you will register it after going to registrar,
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If you don鈥檛 do that, then also there are no such problems,
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Still with partnership deed, it will be called as a valid partnership firm,
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After that if I want to make a private limited company,
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So, in it what I have to do is, there is a Ministry of corporate affair,
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I have to file it there,
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I have to do proper filing for making my private limited firm to MCA,
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It will take 7-10 days,
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So, after proper filing your private limited company will be made,
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Now LLP, in it the process is same,
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You have to file LLP at MCA, it will also take 7-10 days, for filing & approval,
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& Your LLP, will be made within 7-10 days,
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On third point we will talk about there is a different type of names of owners in these,
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Like in proprietorship, proprietor is owner, so he will be owner,
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In partnership firm, owners are partners,
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In private limited company, there is so much confusion
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As we have directors, & shareholders,
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So, shareholders are the owners, then who is director,
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Director is those who run the company,
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Now the shareholders can be director,
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Let assume I'm a big person, and I'm shareholder of firm, & I'm owner,
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Now might be I don't have enough time to run it,
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So, what will I do, I will make someone as director,
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So that that person can direct the business according to him,
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So that he can make the business profitable,
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& The profit will obviously go to shareholder, but who will direct? Director,
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In case of LLP,
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In LLP, there are partners, designated partner,
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Who solely wholly run the company,
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So, there are designated partner in case of LLP,
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Now if we talk about Tax Rate Applicability,
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Then in proprietorship, slab rate is applicable,
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Slab rate, you might now, like 0-2.5 lakh its zero,
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2.5-5 lakh, 5%, 5-10 Lakh, 20%, over 10 lakhs, 30%,
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So that's how tax slab rates are,
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In case of private limited, a lot of amendments & changes have come,
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So, you might know that
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When a new company is made, then 15% rate is applicable,
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& 22% rate is applicable on old once,
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In partnership, 30% rate is applicable,
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LLP, in its case same 30% rate is applicable
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Now, how many minimum & maximum shareholders should be
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Or how many owners are required,
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So, in proprietor, obviously form name you can guess, a single person,
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So as sole there is only one person,
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So, owner will also be one, he will do everything,
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In partnership firm, in it, minimum there should be & maximum can be 100,
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In case of private limited, minimum is 2 & maximum can be 200,
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If you want to take it over 200, then you have to make it public limited company,
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As I told you earlier that we are not discussing it here,
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As it will be of big scale,
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So as here we are talking that initially how to set up business,
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So, in private limited company if you want more shareholders than 200,
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Then you have to incorporate it as public limited,
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In case of LLP, minimum is 2 & maximum as many as you want,
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Now let us talk about yearly compliances,
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Let us divide the yearly compliances in parts,
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First will talk about GST, then income tax, then PF, ESI, then applicable laws,
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Like in proprietor, nothing was applicable,
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In partnership, partnership act,
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In private limited case, companies act,
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& In LLP, LLP act,
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So, when I talk about GST, we will divide the compliance in 2 parts,
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One is, when we file monthly return,
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& Second is annual return or what kind of Tax file you have to do, will talk about that,
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So first keep in mind that, GST, you only have to file the return,
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When your organisation is registered under GST,
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& It will get registered only when your turnover amount will cross certain limit
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Like in case of gods its 40 lakhs, as we discussed before,
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& In case of service its 20 lakhs
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So, if you are crossing 20 lakhs on case of service, & 40 lakh in case of goods,
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Then only it is compulsory to register,
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& Then you will file the return,
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Now in all the 4 cases this will be applicable,
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If its proprietorship, partnership, private limited or LLP,
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After that about Annual return, then to those who have filed monthly return,
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It is compulsory for them to file annual return,
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& Now about GST audit,
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Before the limit of GST audit was 2 crores, & now its increased to 5 Crore,
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So, if your turnover is above 5 crores, then your GST Audit is compulsory for you,
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There should be a chartered accountant for doing GST audit,
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So, it is also compulsory of you,
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If your turnover is above 5 crores,
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After that if we talk about income tax
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Then you have to file income tax return, as in case of proprietorship, as per slab rate,
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In partnership, as we have discussed before, partnership is 30%,
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For LLP its 30% & case of companies, 15-22%, & when you will file return,
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Tax audit is also compulsory for you,
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The limit in tax audit is, for professionals its 50 lakhs,
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If someone is giving professional services then the limit is of 50 lakhs as turnover,
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& Other than professional or if you are running a normal business,
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Then the limit is 1 crore,
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So, if limit of 50 lakh or 1 crore is crossing,
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Then doing tax audit is also compulsory for you,
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& After that about PF & ESI, in its limit is 20 employees,
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If you cross 20 employees, then registration is compulsory for you,
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If you will register, then you have to file the return on monthly basis,
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After that, let me talk about applicable laws,
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So, in proprietor there are no laws, so there is nothing about compliances,
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After that in partnership, as such there are no compliances,
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In companies act, there are a lot of compliances that come in play,
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When you incorporate a private limited company, there will be a lot of compliances,
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Like your audit will be compulsory, according to your turnover,
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Audit under companies act, it will be different from tax & GST audit,
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You have to do one more audit apart from GST audit & Tax audit,
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Which is known as statutory audit
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So even if your turnover is zero, still it I compulsory for you to do that,
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After that you have to maintain books of accounts,
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As it is compulsory under companies act, you have to file annual return,
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You have to do some mandatory registrations,
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You have to hold minimum 4 meeting with board of directors, in a year,
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So, these are the compliances that you have to fulfil during the year,
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& There is actually some more compliance,
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& You have to fulfil those too here,
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So, I will say a lot of compliances come in play
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When you incorporate a private limited firm,
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So now will talk about LLP, in case of LLP, the applicable law is, LLP act 2008,
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There are a lot of compliances in it, but there are also some relaxations in it,
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Like in case of private limited it is compulsory to do statutory audit,
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But here if your capital is of 25 lakhs, in case of LLP, if capital is of 25 lakhs,
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& Your turnover will be over 40 lakhs,
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Only then according to LLP act, it is compulsory that you had to do audit,
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So now, minimum capital,
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In case of private limited I forgot to mention that
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There should be a capital of minimum 1 lakh,
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& There are no such requirements in case of LLP,
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You can start with 0 capitals,
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In case of private limited you have to maintain a lot of registers,
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In it there are no such requirements,
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And there is more such relaxation in case of LLP,
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So, LLP, I can say is a mixture of Private limited & partnership firm,
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LLP is made from the combination of both,
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LLP is made after taking the benefits of both,
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So, this was about compliances, about yearly compliances
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Now let us talk about cost,
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That how much cost comes in yearly compliances,
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In proprietorship there is no cost,
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If you don't have GST registration, then there is zero cost for you,
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In case of proprietorship,
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In partnership, its same, there is no cost, as there are no compliances,
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GST return, PF, ESI, everything will happen only when,
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In GST when it will be over your turnover, when turnover will be above certain limit
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PF, ESI when your employees are over the limit,
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So, if that happens, then there will be requirement applicable,
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But if not, then there are no requirements, there is Zero cost,
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As your requirements will increase & your compliances increases,
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Your cost will also increase,
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But in case of private limited if you do business or not,
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Your cost will incur, minimum 50,000 will incur,
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If you don鈥檛 even have PF, ESI still you have to pay 50,000, as in it,
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You have to do audit, file your income tax return, and you have to maintain registers,
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So, there are so many compliances that you have to do on yearly basis,
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So, your 50,000 is a must,
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Same in case of LLP, the compliances increase,
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So, you have to incur some cost,
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So, assume that at least 20,000-25,000 is must, even if you don't do business,
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Now the first question that will come in your mind will be,
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There are so many yearly compliances, so much cost is involved,
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In private limited & LLP, so why will I make LLP, or private limited company,
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Why will I issue, why will I have got to these, if there are so many disadvantages in this,
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Then why will I go for this,
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So basically, I will tell you 3 benefits of it, 3 major benefits,
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First is, legal identity, so whenever you will make private limited or LLP,
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Then you will get separate legal entity,
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You will get legal entity through an ACT,
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That a different person exists,
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When you make Ram & Shyam Private Limited, so it will get another existence,
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Which is known as legal identity,
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So, first benefit is this,
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Second benefit is, liability in LLP & Private limited is limited,
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It means, if you took loan from bank, &
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Let's say you took a loan & you got some issues with your business,
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Because of which, you are not able to pay back the loan,
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So, in it what will happen, in limited liability,
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Limited means as much money as I putted in my business,
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Let say I have putted 1 lakh in my business,
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& My bank loan was of 1 crore,
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So now let's assume that our business got failed & I'm unable to pay the bank loan
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Now my liability will be limited to the money which I put in it,
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My home & all is different form me,
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So, there is no relation of my home & all to bank,
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The bank has only relation with the property of LLP & Private limited company,
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So, this is one benefit that your liability will be limited,
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In proprietorship & partnership,
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Your business is your home & your home is your business, so everything is same,
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So, there will be no difference in it, in partnership or proprietorship,
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If you take a loan & if you incorporate these things, & if you got bankrupt after wards,
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And if your partnership form or proprietorship don't have that much money,
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Then you even have to sell your property for repaying loan,
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So, this is one benefit that your share gets limited,
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That the money you putted in business, you are limited till that only,
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So, you don't have to put anything else in it,
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Third benefit is, it is perpetual succession,
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What does perpetual succession mean?
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Let's say you open proprietorship & the proprietor died,
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So now what will happen, business will close,
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But if I opened private limited, & if any shareholder dies,
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Then this share will get transferred to someone else,
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So, in its perpetual succession happens, in case of LLP & Private limited,
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So, this is one benefit in it,
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So, first benefit was legal entity, second limited by shares,
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Third is perpetual succession, so these are the three benefits that we majorly get in it,
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When we incorporate it,
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Yes, I do agree that cost is involved, but there are benefits too
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Till now, we have seen differences, benefits advantages, disadvantages,
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We have discussed for all four,
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Now we will discuss that what will be beneficial for your business from all 4,
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Proprietor, partnership, private limited, LLP,
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Now let us analyse & look at all 4, that what can be beneficial for your business,
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Let's say if you want to work on small level,
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& There is no requirement of bank loan or investment funding in it,
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Then I will recommend that you can go towards proprietor or partnership firm,
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Because there are less compliances in it
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& Basically, I'm saying this because you don't require bank loan or investment funding,
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Because bankers & investors are more interested in legal entity,
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Who is fulfilling compliances, like audit, and other compliances that?
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I have discussed with you, that private limited or LLP had to fulfil,
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So, they are more interested towards there,
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So, they fear a little to put their money in proprietor to partnership,
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So, I will say if your work is of small level, then start from this,
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Because compliance cost is also high,
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But let鈥檚 say if you want to increase your work,
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Or if you are going to work on big level,
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Or if you need funding, then you should look up to private limited or LLP
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And if you are going towards funding,
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Then I would recommend private limited
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Because this is a culture in industry, that if we invest in private limited, as an investor,
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It is a culture that they will invest in only those, as we want ownership of shares,
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& If you want to work on big level, & if you want to lessen the compliances,
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Then go for LLP,
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So, it's up to you what kind of requirement do you have,
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LLP or Private limited, depending upon your requirements,
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So, you can choose any of them,
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I hope you liked the video, if you did, then make sure to leave a like,
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Do subscribe the channel &
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Thank you :)
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