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Funding Compliance, Healthcare Startup

The growth of the IT sector in India has led to the emergence of Healthcare Tech sector in India. And, as a part of this immense development, to scale up, entrepreneurs look forward to raising funding for healthcare startup from an external source. This article is dedicated to founders in this sector finding answers to ” How can I raise funding for my healthcare startup?”

You can raise funds through 3 routes:

  1. FDI
  2. Venture Capital investment
  3. Borrow money

FDI Route:

  • Foreign investment into India is governed by the Foreign Exchange Management Act, 1999 (“FEMA”), the rules and regulations made by the RBI, and the Industrial Policy and DIPP.
  • 100 percent FDI is permitted in most sectors under the automatic route (no approval of FIPB”)
  • Hospital sector and in the manufacture of medical devices – 100 percent FDI allowed under automatic route
  • Pharmaceutical sector – Under the automatic route, FDI is permitted up to 100 % in Greenfield projects and 74% in Brownfield projects and FDI beyond 74% in Brownfield projects requires FIPB approval.
  • The cap on FDI in the insurance sector has been increased from 26 percent to 49 with the directive that the ownership of the insurance company be retained in Indian hands.


Venture Capital Investment Route:


  • All venture capital investment by entities registered with the Securities Exchange Board of India (“SEBI”) as foreign venture capital investors.
  • It is not mandatory for a private equity investor to register as a Foreign Venture Capital Investor (“FVCI”) under the FVCI regulations 11, there are some significant advantages to be gained by registering as an FVCI.
  • Registered FVCIs benefit from free entry and exit pricing and are not bound by the pricing restrictions.
  • FVCI can opt for both QIP route and QIB route in IPOs.
  • FVCI can opt for Lock-in options in case of IPOs.


Borrow Money Route:

Before entering the lending process, analyze the situation first:

  • When money lender is a foreigner:  These guidelines issued by the Reserve Bank of India (the RBI), regulate not only the returns (prescribed all-in-cost ceilings pegged to 6 month LIBOR cover fees, interest fees etc. except pre-payment fee, commitment fee and fees payable in Indian Rupees) but also the tenure and amount of the loan, the sectors and purposes for which loan can be availed, the type of security and so on. Sometimes approval of the authorized dealers and in some cases that of the RBI may be required.
  • Transaction costs: Stamp duty (and sometimes registration duty) plays a significant part in the choice of security, properties (immovable or movable and location of immovable property) and place of execution. It differs across states in India and can be very significant.
  • Money advanced against the provisions of Contract Act and Existing Laws: any contract drafted to lend money should be in accordance with Provisions of Contract Act, sometimes due to Ignorance, money is loaned to a minor or for purposes barred by Indian Law. Recovery of money in cases is extremely difficult.
  • Taxation Issues: Loan money received has no tax availed on them but when interest is charged, the interest is liable to tax.

     To Ensure Recovery of Your Money:

  • There are three easy steps to ensure the recovery of your Money-
  • Promise Note: A promissory note is an acknowledgment to pay back debt (on demand or otherwise) and may include some simple terms and conditions. If the aim is to include specific or detailed clauses, it is advisable to enter into a loan agreement.
  • Loan Agreement: Unlike a promissory note, a loan agreement can be modified. An amendment clause needs to be incorporated in the agreement. It enables the parties to amend the document on mutually-agreed terms and conditions. Thus, when more Complications are Involved
  • Money Lender License: If Money Lending is your Business and major part of your Income comes through it you need to get Money Lenders Registration from Local Authorities. Constitution grants power to State Governments to draft Legislations as to Money Lending. Some of them also impose restrictions as for rate of interest, and procedure to be followed and such licenses provide security in legal disputes.

 Enforcement Remedies: Given the overstretched judicial system in India where recovery proceedings are typically time-consuming, you can approach the Debt Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, this represents a significant advantage. Some have tried to work around this through inter- creditor arrangements.

Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to help you. Let’s Connect! 🙂

BTW, This blog might interest you Every Venture Wanting to Raise Funds, things you need to know


Agreements, MoU, MoU

Before we talk about MoU, I will quickly help you distinguish between Contract and MoU. A contract is a legally enforceable agreement between two or more parties that creates a legal obligation to do (or not do). Most commonly, contracts involve the exchange of promises. Another key characteristic of a contract is that if one of the parties breaches the contract they are legally punishable. For example, an LLP Agreement is one such Agreement, there are clauses in this agreement that abides the partners to legally abide by. Without a further due, this article will help you in required planning to enter a MoU.

Memorandum of understanding (MOU), similar to Contract, is an agreement between two or more parties. Unlike a contract, however, an MOU need not contain legally enforceable promises.

For Example, Company X is negotiating with company Y on a business deal, company XZ does not want to loose the deal but needs time to do due-diligence. Both the parties enter an MOU.

MOU may outline the terms of an agreement but state that each party’s responsibilities are only enforceable “in the event that the parties’ governing boards decide to enter a joint use agreement.”

For Example, Company X has responsibility of enforcing the MOU by September 2018

MoU typically addresses expectations and responsibilities of each of the parties such as: (1) who bears responsibility for the costs of maintenance and repairs, (2) insurance and liability, (3) staffing and communications, and (4) conflict resolution (5) Confidentiality

For Example, Directors of Company X cannot withdraw from the agreement, if it did the conflict may be resolved by described means.

A MoU can be exclusive or non-exclusive:

  • Exclusive MoU, parties are restrained from entering similar MoUs with any other entity during the term of that MoU.
  • Non-exclusive MoU, parties are free to enter discussions with other entities dealing with the same subject.

For Example, to avoid any competition of Company X approaching the company Y under negotiation, you can enter a MoU on an exclusive basis.

MoU Agreements ideally should consist:

  1. Title

The title of the MoU should reflect the nature of transactions between the parties.

  1. Identification of the Parties

The introduction of drafting a MoU and Agreement is same. Before discussing the structure and content of MoU, it is important to discuss the following principles:

(a) There is a mutual desire of both the parties of equal commitment to work together.

(b)The provisions of MoU should not be in conflict with any existing MoU or agreement entered by the organization between the parties and the third party.

(c)The language of MoU should be simple, unambiguous and open to review.

(d) MoU is a living document so it should be kept alive for review.

(e)Since MoU is a formal document it should be drafted with legal, technical and financial experts.

  1. Background/Recitals

A brief summary of circumstances leading to the MoU

  1. Legislative Context

The MoU should contain the legislative context i.e. the statement to the extent it is legally binding as well as relevance to any law to which the parties are subjected to.

  1. Purpose of MoU

This broadly defines what a particular MoU actually covers i.e probable outcome of MoU and societal benefits. It defines every area that both the parties are going to cover in the MoU.

  1. Consideration of an Agreement

The consideration of an agreement should be clearly stated. The agreement must mention of exchange of dollars/rupees or goods or mutual promises. If it is an international agreement, it would be good to mention the currency in which the consideration would be paid to avoid hassles including the conversion date as well.

  1. Joint Undertaking and Responsibilities

A statement describing the joint responsibilities and action of each party including the description of cooperative activities, description of the exchange of resources. Reference to relevant timelines, milestones, protocols of communication between the parties.

  1. Other Clauses
  • Termination of MoU
  • Cancellation Provisions
  • Dispute Resolution
  • IP Rights
  • Confidential information
  • Address for Notices
  • Review and Amendments
  • Indemnification Clause

 Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to draft MoU for you. Let’s Connect! 🙂



Agreements, LLP Agreement

Before an LLP could start its operations, an LLP agreement is should be entered between partners. LLP agreement covers how members can be expelled, and other critical issues, to avoid unfair prejudice claims. This Limited Liability Partnership Agreement will also consist of the date and month of the year it was entered between the partners. Complete address of the partners will be quoted in the agreement, this address would be used for future emails. This blog will answer your question on ‘What does an LLP Agreement consist that partners should know?’

‘Statement of Background’ section:

  • Date of submission of form 2
  • The RoC in which the firm will be registered with.
  • The principal activity of the LLP: A brief note on the purpose of the business and laws that will abide by.

‘LLP Name and status details’ section:

  • LLP’s Name section: This will have the LLP name and a provision for LLP to change its name in future (after voting process).
  • Then comes the ‘Identification of initial partners’ section: This section will consist of rules under which addition of partners can be made.
  • Status of LLP and LLP Assets’ section: This would state that LLP shall be a legal entity separate and distinct from its Partners. The LLP shall own all its assets in its own name.
  • LLP’s Principal Business Activities’ section will consist additional note to the brief description on the activities that the LLP would undertake.

LLP’s Powers ‘section:

  • LLP’s Duration: The duration of the LLP can be indefinite and can wind according to LLP Act
  • LLP’s Registered Office’ Section: will state the address as mentioned on Form 2 and the criteria for it to change the address.
  • ‘Reservation of LLP’s Management’ section: The management of the LLP shall be reserved to the Partners.

What does an LLP Agreement consist that partners should know?

LLP’s Annual Accounting’ sections: This section will look something like this

  • LLP should prepare profit and loss account and balance sheet including statement of accounts and solvency in accordance with the provisions of Income tax Act, 1961
  • Auditing,
  • Partners’ Contributions to the LLP in Exchange for Their Partnership Rights
  • In deciding income, the LLP shall use the accrual basis or cash basis as decided by majority of partners
  • LLP’s Accounting Method: As per Indian Accounting Standards and Income Tax Act, 1961 unless otherwise required under the LLP Act.
  • The LLP’s annual accounting period for financial and tax purposes shall be the financial year as defined in the LLP Act.

‘LLP Partners contribution’ section: This section will look something like this

  • Documentation of Contribution.  Promptly after any Partner contributes to the LLP, the LLP shall file in the LLP’s records
  • Initial Contributions. Partners shall, in exchange for their Partnership rights, make contributions to the LLP of the cash, property, services, and promises of cash, property, and services.
  • No Capital Calls. No Partner shall be obligated to contribute to the LLP except as mentioned in the agreement.
  • Subsequent Partner Contributions.  Partners admitted to the LLP after execution of this agreement shall make contributions in exchange for their Partnership rights only b making amendments to
  • The Partners shall earn 10% interest on their contributions as specified in the agreement.

LLP Record Keeping and Banking: This section will look something like this

  • Compile and Maintain Records and Information in Compliance with the LLP Act
  • Compile and Maintain Books of Account and Other Records Required for the Sound Management of the LLP, LLP’s business and for its internal affairs.
  • Compile and Maintain Certain Records Concerning Contributions
  • Compile and maintain records evidencing that its Partners have made to the LLP the contribution.
  • The LLP shall open and operate one or more bank accounts either current account or overdraft with one or more banks as may be agreed upon by affirmative vote of all partners

LLP’s allocation and distribution to the partners:

  • Allocation of its profit or loss between the Partners in proportion to the Partners’ partnership interest in LLP.
  • Interim Distributions criteria

Capital account and a Current account of the partners:

  • Capital Account
    1. Maintenance of Capital Accounts. A Partner’s capital account should be credited or debited whenever there are contributions made.
    2. Distributions in Liquidation of the LLP. In connection with the LLP’s liquidation, the LLP shall make distributions that leave each partner with a capital account of zero.
  • Current Account: A Partner’s current account shall at the relevant time have credit or debit to each of them as the case may be any;
    • any share or profit or loss allocated under section 5.1 or
    • any interim or liquidation distribution under section 5.2 or
    • any interest on capital or loan from a partner.

LLP Partner Dissociation and purchase of shares: This section will look something like this

  • Events of Dissociation—In General (rights after dissociation will also be listed down)
  • Dissociation upon Resignation
  • Dissociation upon death
  • Dissociation upon disability
  • Dissociation upon partner insolvency
  • Dissociation upon expulsion
  • Redemption and Cross Purchases of Partnership Rights post dissociation
  • Option of LLP to Redeem and Other Partner to Cross-purchase the Partnership Rights of Dissociated Partner
  • Option of Disabled or Deceased Partner to Require Redemption or Cross-purchase of the Partner’s Partnership Rights
  • Buy out Terms

LLP Grants of Partnership Rights: This section will look something like this

  • LLP Grants of Partnership Rights to Third Parties, done after execution of agreement and affirmative vote of all partners
  • LLP Grants of Additional Partnership Rights to Partners, After the execution of this agreement, shall be decided by the affirmative vote of all partners
  • Partners sales and other transfers of their partnership rights to 3rd parties require the affirmative vote of all partners .
  • The requirement of Consent of Other Partner for Pledges of Partnership Rights.

LLP Partner meeting:

This section will lay down the frequency in which the meeting shall be held.

LLP Partner Voting:

Each material matter relating to the day to day LLP’s business and internal affairs (a ‘partner matter’) will be decided by affirmative vote of all partners. Each partner shall cast one vote on each partner matter.

LLP partners rights to LLP records and confidential information:

  • Right of Access, Etc. Each partner will have right to access, copy and use LLP records and information.
  • Each partner shall maintain the confidentiality of confidential LLP records and information.

LLP Management: This section will look something like this
  • Partners’ Responsibility for Managing the LLP
  • Partners’ Agency Authority; Restriction on Exercise of Agency Authority like contract signing
  • Partners’ Compensation and Fringe Benefit
  • Partners fiduciary duty of care and loyalty

Mandatory Arbitration mechanism:

Any arbitration under or relating to this Agreement or relating to the LLP will be conducted by a single arbitrator, in accordance with Arbitration and Conciliation Act, 1996.

General Provisions:

Amendment of Agreement: Provision for amendment of the Agreement will be valid unless it is approved by affirmative vote of all partners, and is in writing, and is signed by partners as decides.

Signature and Dates:

In witness of their acceptance of the terms and conditions of this LLP agreement, the parties, by themselves have duly signed this Agreement the day, month and year.

Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to see your startup kick starts seamlessly. Let’s Connect! 🙂





Export and Import trade is regulated by the Directorate General of Foreign Trade (DGFT) and its regional offices, functioning under the Ministry of Commerce and Industry. Policies and procedures are announced by the DGFT. This article is dedicated to all startups that are planning to export from India, proud of you guys! Startups planning to Export  here are the Top 3 things to note

Who can Export? The following persons can be an exporter:

  • Proprietorship
  • Partnership firm
  • Government undertaking
  • Public limited company
  • Section 25 Company
  • Registered society
  • HUF
  • LLP
  • Private Limited Company
  • Trust

1. Pre-requisite registrations:
  • Register your company/business organization.
  • Obtain the pan card
  • A current account with the bank.
  • GST Registration

2. Pre-Shipment, you need to have following documents in place:
  • Importer Exporter Code: You need to acquire Import Export Code from the regional authority of DGFT. They will also issue business identification number 15 digits Alphanumeric along with IEC. This BIN is based on PAN Card number.
  • Before the first import or export, you will require obtaining EDI registration with the specific port.
  • To avail export incentives and for a general guidance, registration with EPC/FIEO will be necessary (optional)
  • Terms of Payment and Terms of delivery as agreed with your overseas buyer
  • Pro-forma invoice
  • Export Order
  • Purchase order
  • All export contracts and invoices shall be realized in freely convertible currency. There is no restriction on invoicing of export contracts in Indian Rupees. Indian Rupee is not a freely convertible currency, as on today.
  • Export Declaration Form
  • Obtain necessary inspection certificate from the inspection agency (optional)
  • Certificate of Origin will be provided as per the buyer’s requirement. (optional)

Note:  It is permitted to receive advance payment by the exporter. However, the exporter should follow the regulations laid out by FEMA.

3. Post Shipment:

  • All the exporters have to give a declaration in the shipping bill reading as per FEMA act
  • The exporters shall be liable to realize and repatriate export proceeds as per FEMA Regulations (9 Months AP circular no.37 Dated: 20.11.2014).
  • The exporter is required to collect all the relevant documents and submit the same to his bank within the prescribed time limit (21 Days).
  • Documents presented by the exporter to his bank are forwarded to the importer through the banking channel. Depend upon the payment terms, Indian exporter will receive the payment. The bank will issue necessary e-BRC as per the guideline of DGFT.
  • Participants in international exhibition/trade fair have been granted general permission for opening a temporary foreign currency account abroad. Exporters may deposit the foreign exchange obtained by the sale of goods at the international exhibition/trade fair and operate the account during their stay outside India.

Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to see your startup kick starts seamlessly. Let’s Connect! 🙂

Early stage startups are usually busy with Bootstrapping, less than 6 months old startups, 99% do not have a proper accounting advisors in place. There could be many reasons for that, but most of the reasons would sound fair enough ‘Can’t afford it, bro’. We all can agree that having a accounts department in the team will help in the management of the company to a large extent. This blog will address, less than 1 Year Old startups here are the 7 tax questions to nearly memorize.

1. What is TDS? When does one need to deduct it?
TDS means Tax Deducted at Source. When any dealer makes any payment to any vendor, the dealer has to deduct the applicable TDS from the original amount in case the tax amount in a financial year crosses Rs 2,500. It’s the responsibility of the dealer to deposit this TDS monthly before the due date against the PAN number of the vendor.

2. How do I deposit the TDS collected to Government?
TDS is paid to Government through the Income Tax department every month
Every quarter TDS returns need to be filed to IT department. Here we need to give the details of every deduction made in that quarter. Details involve the name of the vendor, PAN number, purpose of payment etc.

3. Is it compulsory for my Statutory Auditor to maintain my monthly accounts?
No. Actually, your accountant can not be your auditor.
Anyone can maintain your monthly accounts. In fact, monthly accounts can be maintained by a non-CA as well. But if it is not properly done, it would be difficult to complete statutory audit, which then becomes a cumbersome process.

4. If I take a monthly accounting package what all does this include?
      1. The monthly accounting package comprises of:
      2. Monthly Tax calculations Payments like VAT, Service Tax, TDS and Professional Tax
      3. Quarterly Tax Returns like Service Tax returns and TDS returns
      4. Payroll processing of all employees
      5. Bookkeeping, consolidated monthly balance sheet, and P&L Statement

5. What are the different types of taxes that need to be filed and what are the last date for the filing of taxes and returns?
  • TDS Filing: All the TDS that was deducted in the month has to be deposited to Income Tax Department within 7th day of the next month
  • GST Filing: GST return filing is mandatory for all GST registered entities irrespective of the number of the transaction during the return filing period.
  • Professional Tax Filing: All the Professional Tax deducted from employee’s’ salary has to be deposited to Commercial Tax department within 20th day of the next month
  • TDS Quarterly Returns filing: TDS Quarterly returns have to be filed within following days
    1. Quarter – 1: 31st July
    2. Quarter – 2: 31st October
    3. Quarter – 3: 31st January
    4. Quarter – 4: 30th April
  • Half Yearly Service Tax Returns Filing: Half yearly Service Tax returns have to be filed on following days
    1. 1st Returns filing – 25th October
    2. 2nd Returns Filing – 25th April

6. What does Audit include? When do I need to get it done?
All the revenue and expenses incurred by the company in the financial year is reconciled by the Chartered Accountant and Balance sheet, Profit and Loss Statement and Cash flow statement are prepared. Annual report and Director’s notes are prepared and filed with RoC. Two forms AoC-4 and MGT-7 will be filed with RoC

7. I started my company in january this year, do I need to get the audit done this year itself?

Indian Companies Act-2013 gives a concession to the companies registered on or after January 1. These companies can file the returns for up to 15 months together with the next financial year. Hence Audit is not required for the companies in this year.
For example, if the company is registered after January 1, 2016 and before March 31, 2016, technically the financial year ends on March 31, 2016 and they should have had their company audited before September 30, 2016. However, due to this concession these companies can get their companies’ audited along with the next financial year before September 30, 2017.

Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to see your startup kick starts seamlessly. Let’s Connect! 🙂

Agreements, Contracts and Agreement, Joint Venture Agreement

For an Indian company can partner with a Foreign Company, Joint Venture is the solution. This article will talk on the lines of eligibility criteria, power distribution, and taxations involved.

Indian joint ventures usually comprise two or more individuals or companies, one of whom may be nonresident, who come together to form an Indian private or public limited company, holding agreed portions of its share capital. A joint venture agreement primarily provides rules by which the shareholders of the joint venture company may transfer or dispose of their shares. It is also commonly referred to as a shareholder’s agreement.

Remember, In order to protect sensitive business information from being divulged to others, confidentiality and non-disclosure agreements are entered into, prior to commencing negotiations of Joint Venture. Which we Wazzeerians think is the best practices of negotiation.

Key Eligibility Criteria:

  1. In certain areas such as telecommunications, drugs & pharmaceuticals, hotel & tourism, or advertising foreign investment up to 50%, 51% and/or 74% in the Joint venture without RBI approval.
  2. For more than 74% of the total equity in a joint venture company or to establish a Wholly Owned Subsidiary (WOS), permission must be obtained either from the Foreign Investment Promotion Board (“FIPB”) or the Secretariat of Industrial Approvals (“SIA”). Foreign companies not wanting to tie up with an Indian partner may establish liaison, branch or project offices, or WOS.

Entity options to form a Joint Venture as:

  1. Companies limited by shares (public and private)
  2. Companies limited by guarantee (limited to the amount pledged)
  3. Companies having unlimited liability (liability of each member is unlimited)

Control in the joint venture company:

After passing the either of the following resolutions, the control and roles are decided. Note, your Joint Venture Agreement will state which one to be followed.

  1. Special Resolutions: Passed only by shareholders having 75% shares with voting rights in the company. Or,
  2. Ordinary Resolutions: Passed by shareholders having 50.01% shares with voting rights in the company.

A special resolution is inter alia required to amend the MOA and AOA of the company, to issue further shares through a rights issue, to give loans or guarantees to other companies, etc. 51% majority ensures control of the day to day working of the company. Therefore, much depends on the level of control the foreign investor seeks.

The articles of association, incorporating the key provisions in shareholders agreement, provide for control of the joint venture company. The exercise of control is done at two levels: 1. Board of directors 2. Shareholders

Tax considerations and subsidies:

India has double taxation avoidance agreements (“DTAAs”) with many countries. In many instances, companies route their investments into an Indian joint venture company through an offshore destination.

Joint venture companies do not per se get advantageous tax treatment. However, the Indian Income Tax Act gives certain benefits to industries set up as 100% export oriented units, or in export processing zones. In addition, infrastructure industries in the areas of power, telecommunications, ports, etc., get tax breaks and rebates. Persons investing in the bonds of such companies do not pay tax on the interest received.

To make the joint venture agreement valid in law:

The requirements prescribed by the Indian Contract Act and the Cos Act needs to be met. Some of the important criteria to be fulfilled are:

  1. Offer and acceptance,
  2. Consideration,
  3. The intention to form a company,
  4. Signature of the parties
  5. Constitution of the board of directors,
  6. Termination clause,
  7. The binding nature of the agreement,
  8. Share transfer provisions,
  9. Dilution clause,
  10. Dispute resolution clause

Parties have to pay stamp duty on the joint venture agreement and have to register either with the RBI or the SIA, depending on which authority gives clearance for the project. No registration is required under the Indian Registration Act unless the joint venture agreement deals with the transfer of immovable property rights.

Wazzeer is vouched by Entrepreneurs as the reliable Legal and Accounting Partner. We would be super excited to help you. Let’s Connect! 🙂





Business Formation, Business Registration

This year is seeing the most remarkable changes, be it GST, AADHAR, RoC Filing penalties etc. One thing that we all can agree upon is our nation is shifting towards transparency, which is great. Founders this is the right time to take the right decision by asking the right question, without any due, bring you the Top 15 Business Registration Questions this Year.

 1. How do I start a business in India?

  • The first step to starting a business in India is the registration of a business entity. Any form of the entity can be chosen and registered with the relevant government department.
  • Once the entity is registered, the applicable tax and other registrations need to be done in the name of the entity.
  • Exceptional cases, Sole Proprietorship and Partnership firm do not have business registration.

2. What are the different types of business entities?
For a for-profit business, there are primarily five types of business entities in India:
  • Public Limited Company
  • Private Limited Company
  • Limited Liability Partnership (LLP)
  • Partnership
  • One Person Company (OPC)
  • Proprietorship
  • While the first four types (Public Limited, Private Limited, LLP, and Partnership) require more than one promoter, OPC and Proprietorship are the types of entity applicable when there is only one promoter.
  • Non-Profit Organizations (Sec. 25 Companies)

3. Which entity is best suited for me?

The nature of the entity depends on your future plans, scale, and nature of the business. In the list below, we have shared a general guideline for the types of business the different entities are best suited for.

  • Sole Proprietorship
    1. Small Traders & Merchants where there is only single founder in unorganized sector
    2. Single founder testing the market
  • Partnership Firm
    1. Small Traders & Merchants where there are 2 or more in unorganized sector
    2. Has lost the relevance otherwise after introduction by LLP
  • One Person Company
    1. Single Promoter who wishes to take advantage of Limited Liability
    2. Suitable only for small businesses
  • Limited Liability Partnership
    1. For businesses started by 2 or more founders
    2. If there is no need of equity investment for the company
  • Private Limited Company
    1. Scalable Businesses started by 2 or more founders
    2. If Funds are to be raised in lieu of Equity shares of the company

4. What are the advantages and disadvantages of a Private Limited Company?

  • Very easy to issue fresh shares and raise equity funding
  • Easy to offer and manage equity to the new promoters or ESOP to the employees
  • Easy for investors or shareholders to exit the company by selling their shares
  • More Credibility in the market
  • Limited liability of the promoters or shareholders

  • Compliances are relatively higher than the other entity types
  • Low Tax Benefits
  • In case the business needs to be closed down, a cumbersome process has to be completed

5. What are the advantages and disadvantages of a Limited Liability Partnership (LLP)?

  • Lesser compliances since the working is governed by the Partnership deed
  • Tax benefits like no dividend distribution tax and no tax on loans to partners
  • Limited liability for the partners
  • Very difficult to raise funding on fresh equity
  • Extremely difficult to offer Shares/ ESOPs to employees or other stakeholders
  • Selling of the shares of one of the Partners is not possible

6. What are the advantages and disadvantages of a Partnership?

  • Easy to incorporate
  • Legal way for group of individuals to conduct business


  • Unlimited Liability among partners
  • The firm does not have separate legal existence
  • Extremely unlikely to raise equity capital or offer equity to any other stakeholder

7. What are the advantages and disadvantages of a One-Person Company (OPC)?

  • Limited Liability
  • Allows to have only one promoter
  • Name recognized by MCA
  • Impossible to issue fresh equity and get funding in lieu of Equity
  • Once the transaction crosses INR 2 Crores, it is compulsory to convert the company to Pvt Ltd Company or Public Company
  • Compliance similar to that of a Private Limited Company

8. What are the advantages and disadvantages of a Proprietorship

  • Easiest way to start a business
  • No separate registration of the company is required. Only the applicable tax and other registrations, as applicable will be needed to operate the business.
  • No Legal difference between the Proprietor and the company
  • Unlimited personal liability
  • Impossible to accept equity investment

9. What is a Public Limited Company?

A Public Limited Company is a Company which is limited by shared and has no restrictions on the maximum numbers of shareholders. It can be formed with a minimum of seven members and three Directors. It should be registered with the Registrar of Companies of the particular State under the Companies Act, 1956.

Such type of Company can offer its shares to the Public, accept deposits from it and there is no restriction on the transference of shares.However, minimum share capital requirement for such a Company is Rs.50, 000.

10. I want to start a venture with my friends. Which type of business entity is best suited for me?

In case you are looking to raise equity capital or offer ESOP to your employees in the future, Private Limited Company will be the best-suited entity for you. However, if you do not wish to raise equity capital or offer ESOP to the employees, you can opt for a Limited Liability Partnership or a simple Partnership depending on the financial liability or the nature of the business.

11. I am looking at starting my business. I do not have any cofounders. Which is the best suited entity for me?

In case you want to limit your personal liability and secure the name with the MCA, you should opt for a One Person Company. However, you are more interested in keeping the registration and compliance processes similar; you can opt for Proprietorship firm.

12. Three of us are looking at starting a business. We will be funding it ourselves and not raising any external funding. Which is the best suited entity for us?

You can opt for either a Private Limited Company or a Limited Liability Partnership or a Partnership firm. The choice should depend on the following factors:

  • Exposure to liabilities the shareholders want to take
  • Whether you want to offer ESOP to employees or not
  • Extent of regulatory compliance you want to expose your entity to
  • Whether you want to make the business a going concern or have the existence of entity dependent on the partners. A Private Limited Company is a going concern.

 13. Can I register as one entity and change it to another later?

Presently, following conversions are available by various clauses of Companies Act

  • A Partnership firm registered according to Indian Partnership Act – 1932, can be converted to an LLP
  • A Private Limited Company can be converted to an LLP
  • Please note that the name will now start ending with LLP instead of Pvt Ltd. For e.g., your present ABC Pvt Ltd., should be renamed ABC LLP.
  • OPC has to be compulsorily converted to a Pvt Ltd Company, either if Paid up Capital is increased beyond Rs.50 Lac or if Annual Turnover of immediately preceding three consecutive financial years exceeds two crore Rupees.

14. I am testing waters with an idea right now and am not sure if this is something that will work. What kind of entity suits me the best?

Though this will depend on the nature of your business and the tax and other license registrations that need to be done, you can explore starting with a Partnership or Proprietorship (depending on the number of promoters). Once you have made up your mind and want to raise capital to invest further in the business, you can either convert it or register a new entity.

Please note that in case you decide to start a new entity, you will have to get all the registrations done again and the financial track record cannot be carried from the earlier entity, unless a conversion or acquisition happens.

15. What are the differences between the types of entities – Private Limited, Limited Liability Partnership (LLP), Partnership, One Person Company and Proprietorship?


Sole Proprietorship

Partnership Firm

One Person Company

Limited Liability Partnership

Private Limited Company

Limited Liability






Multiple Partners






Ease of Incorporation

Very Easy. No separate Registration

Easy. Registered under Indian Firms Act – 1936

Difficult. Registered under Indian Companies Act – 2013

Moderate. Registered under Indian Companies Act – 1956

Difficult. Registered under Indian Companies Act – 1956


Very Less Compliance

Very Less Compliance

Moderately Simple Compliance

Moderately Complex Compliance

Complex Compliance

Ease of allotting shares

Not Possible

Not Possible

Not Possible

Very Difficult. Almost impossible

Very Easy.

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