- Type of legal structures for incorporating businesses and different types of business entities.

Shaping the great minds.

Friday, 24 February 2017

Type of legal structures for incorporating businesses and different types of business entities.

In today's world of fast changing technology and business methods, it is very impotent to have an understanding of the legal structures available for various business. and in other hand you also need to be updated about the changing in rules and regulations pertaining to your entity. so this basic review is required.

Usually, while in the rush for growing business, entrepreneur ignoring some common legal issues that cost you heavy on time and money. Here are some common mistakes.

  • Ambiguity in terms of agreement: This means ambiguity in the terms of agreement between multiple shareholders may lead to consequences like co-founders leaving the organisation. 

  • Infringement of IP rights: In this case for contravene upon some else's IP(intellectual property) rights that I have already discussed in my previous blog, your business ends up facing consequently leading to heavy penalties and wastage of time in resolving the same problem.

  • Non-disclosure of privacy policies: If you have an online Business, it is necessary to put the terms and conditions along with privacy policies up on your website. This is a must to build user confidence as well as to protect you from legal lawsuits by consumers in case of a dispute. 

  • Appointment of legal Adviser: Wrong selection of lawyer makes it difficult for Company to troubleshoot legal problems in their journey. 

  • Formation of wrong entity: Selection of a wrong legal structure leads to trouble for entrepreneurs, either in the form of higher tax liability for the firm, recourse on personal liability of the owner in case of non-fulfillment of the company's debt, etc. 

Now Let's come to the point, Under the Indian legal system, there are Basically four types of legal components that are available. Each has its own set of outcomes.

  • Sole Proprietorship : A business run by one individual person with no distinction between the individual and the business. You are in business easily and have minimal filings and compliance requirements. the individual is personally responsible for all the businesses’ liabilities. It is also non scalable given that it appears less professional when compared to other forms of entities. 

  • General Partnership : Relevant when there is more than one founder,, you run the risk of unlimited liability here. A Partnership Deed is signed by the partners to create a General Partnership.

  • Private Limited Company : this type offers greater accountability because of mandatory registration and books to be maintained. in it, you can also seek investments against shares. Employees can avail stock options, and there is no unlimited liability to worry about. 

  • Limited Liability Company : A hybrid entity created out of both a company and a partnership, this entity has a restricted liability clause to support the founders of the company. It is also administratively easier to manage as compared to a company.
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