Starting a company will cost you around Rs. 15000, unless you live in Kerala, Rajasthan or Punjab, where it’s slightly higher. In addition, you will end up spending Rs. 15000 only on compliance fees (including maintenance of minutes of meetings, annual filings, etc), as well as Rs. 2000 to Rs. 5000 on an accountant (assuming you don’t have too many transactions early on – if you do, it could much as Rs. 15000 every month, depending on where you operate from). In the first year, you can expect the company to cost you around Rs. 50000.
Thank you… can you also tell me whether it makes sense to open a private limited company, LLP or OPC?
The type of entity you register would depend on the number of founders and how you plan on growing the company. If, for example, you wish to raise venture capital or attract the best employees by offering ESOPs, you really have no option beyond the private limited company. You can’t do either with an LLP or OPC. But both of these have their advantages, too. The LLP is something of a combination of a partnership firm and private limited company. It is a good structure for businesses offering professional services. Most advertising agencies and tax consulting firms are registered as LLPs. An entrepreneur should only pick an OPC if he/she is really keen on being fully in control of the company. If this is not the case, most single entrepreneurs simply add a relative or spouse as director and form a private limited company.
Thank you. I have a digital marketing business. Will an LLP suffice in this case? What would be the advantages?
Yeah, LLP would work just fine, unless you plan on raising equity. Most digital marketing agencies don’t do this, so it should be fine. LLPs are easier to maintain, compliance costs are low, you don’t need an auditor until your business gets to 40 lakh in revenue, etc.
We are three founders. How long would it take to get the LLP registered?
Depends on how prompt you are with the paperwork. Typically, if you have all the documents in order, it will take around three weeks to get it done. Forgot to mention in my last reply that LLPs are also cheaper to start – around 6-10k cheaper than private limited companies, depending on whom you approach to get it done.
Is there anything wrong with starting out as a partnership firm?
There is nothing wrong in or disadvantage in a partnership. Any business entity would have both merits and demerits in it. As such for a partnership firm, there are more than two persons in the business; unity among them becomes utmost essential. If unity is not secured, disputes arise and disturb the smooth working of the business. Secondly, as there is limitation on the total number of partners, the capital that can be raised becomes limited. Thirdly, there is no Governmental supervision over the affairs of the business of a partnership and publishing accounts is also not necessary. Hence, public may not have full confidence in them. Fourthly, the liability of the partners is unlimited, jointly and severally. This discourages many people from becoming the partners of the firm. A partner cannot transfer his interest to a third party without consent of other partners. This blocks the money invested by a person and it may discourage many investors from becoming partners of the firm. Utmost good faith is the essence of partnership. If a partner acts dishonestly, it may land all others in trouble, because he is an agent of the firm. Partnership lacks continuity of existence, as the death, insolvency or insanity of a partner leads to its dissolution. The radical changes in the methods of production and distribution in modern business leads to large scale business operations. This may not be adapted by partnership due to limited capital and managerial resources.