MNR COLLEGE of ENGINEERING

& TECHNOLOGY

Topic : BUSINESS ECONOMICS AND FINANCIAL

ANALYSIS

Professor: DIVYA JYOTHI

 What is a Business Structure?
 What does a business structure mean?
 In the commercial field, a business structure refers to the organization of a
company in regards to its legal status. Choosing the most appropriate
business structure creates a legal recognition for your trade. Above all, a
business structure trickles down to so many other factors which are part
and parcel of running a successful business.
 For instance, it gives you the best approach to deal with all tax liabilities.
That aside, you get to apprehend all your duties and responsibilities as a
business owner. A business structure enlightens you more about all the
legal documentation you need. Certainly, this will depend on the
jurisdiction where your establishment will be located.
 What's more imperative, is the fact that it shows all possible personal
liabilities that a business owner or partner might incur. Most importantly,
you ought to put into consideration, all the setup costs which include
insurance policies to protect the business' assets. There are a couple of
structures which are commonly used to incorporate a business.
 So let's have a look.
Sole Proprietorship
Primarily, it's the simplest of all to set up. It explains why it's the most
popular business structure across so many setups. As the name suggests,
it means that an individual business owner gets to operate the
establishment on their own. Aside from that, it requires less effort when
doing the reports and the business owner has the power to make all
financial decisions which relate to operating the business.
As a sole trader, you're at free will to file all tax returns using your personal
tax filing information. The best part about a sole proprietorship is that it's not
a legal entity. What does this mean? The business name isn't separate from
the owner. This implies that you can operate a business using your own
name, as in, Jimmy's Barber Shop. In other words, there are no legal
restrictions set.
On the flipside, a sole proprietor is personally liable for all the debts and
liabilities which the business might incur the course of running its
operations. If the business default's to pay the debts it owes, this means
that the creditors can file a bankruptcy petition against the business owner.
One more set back is that the sole proprietor can't sell shares to raise
starting capital for the business.
 Partnership
 A partnership is created where a legal agreement is put in place to allow
two or more individuals to carry out a specific business as co-owners in a
bid to make a profit. In such a structure, all members contribute capital to
set up the business. Typically, there are two major forms of partnerships.
There's a general partnership where the members actively participate in the
daily operations of the business. On the other hand, we have a limited
partnership which has the capacity to have up to 20 members.
 In a limited partnership, the general partner is responsible for the daily
activities in the business and is personally liable for all debts. The passive
partners in this scenario, are only required to contribute a certain amount of
capital to the business but aren't liable of any debts incurred. That is to say,
they have limited liability.
 It's worth noting that a partnership enjoys the pass-through status. In
actual sense, it means that all profits and liabilities pass through to the
owners. There may be equity partners and salaried partners in the business
where some partners are just mere employees while others have a share in
the partnership.
 While forming a partnership, it's mandatory to follow all the legal
requirements in your state. A partnership agreement needs to be part of the
equation so as to capture each partner's financial contribution and their
responsibility in the partnership. It significantly lays out the mediation
procedure in the event of a dispute in the future. Also, it captures the
process to be followed when the members decide to dissolve the
partnership.
 Take note that personal liability is limited for each member in the ratio at
which one contributed to the setup of the business.
 So what are the benefits of forming a partnership?
 They're easy to set up
 No complex reporting is involved
 Dissolving a partnership is simple. A partner can opt out and reclaim their
share.
 All tax losses are split among the business partners
 Limited Liability Company (LLC)
 This is a legally registered business structure which is limited by shares. All
shareholders in such a structure are liable for all the liabilities the company
incurs however, it's limited to the number of shares which an individual
contributes to the company. First, you need to come up with a business name
which denotes the kind of operations the setup engages in. It should end with the
descriptor ‘LLC'.
 What follows is filing the Articles of Organization. This document is similar to
the Articles of Association which regulates the appointment of company
directors and issuance of shares. The Articles of Organization records all the
important information which relates to the LLC. This includes its physical
address, the official name of the LLC, and all details of the filing agency.
Besides that, it records the date which the company intends to kick off its
operations.
 Just like a Partnership, an LLC needs an Operating Agreement. Simply put, it
sets out all the rights and obligations of each partner in the LLC. It records the
amount contributed by each member and the percentage at which the proceeds
will be split. All tax considerations are also part of the contents in this document.
Talking of taxes, a tax registration certificate needs to be obtained from the
relevant authorities.
 .
An LLC is an exceptional business structure since it doesnt follow
all the formal requirements like those of a Corporation. The
members unanimously agree on how the business should be run.
They don't necessarily need a board of directors. It's compatible
with small and medium-sized businesses. They don't need to
keep sophisticated documentation or hold meetings to discuss
matters related to the business
 Public Limited Company in India
 A Public Limited Company in India has a minimum of three directors, a
minimum of seven shareholders, and can have a maximum of unlimited
shareholders. It can either be listed in a stock exchange or remain unlisted.
Once the company is listed as a Public Limited Company in a stock
exchange, its shareholders can freely trade the company’s shares. Since it is
a separate legal entity, the company’s existence is not affected by
retirement, death, or insolvency of its shareholders. Incorporating such
types of entities can be difficult and time-consuming.
  
 Private Limited Company in India
 A Private Limited Company in India is a privately held small business
entity and considered as an independent legal entity on incorporation. It has
a minimum of one and a maximum of fifty shareholders. Unlike Public
Limited Companies, Private Limited Companies cannot publicly trade its
shares. It can have a minimum of two and a maximum of fifteen directors.
 Joint-Venture Company in India
 A Joint Venture (JV), as the name suggests, is a new business entity
created through a partnership between foreign and Indian investors, in
which the partners jointly share the profits, losses, management
responsibilities, and operation expenses. The advantages of joint ventures
are that the foreign company can utilize the well-established contact
network, distribution, marketing channels, and the available financial
resources of the Indian partner. A JV also offers the investors to jointly
manage the risks involved with the new business and limit their individual
exposure by sharing the liabilities.
  
 Partnership Firm in India
 A partnership is “the relation between people who have agreed to share the
profits of the business carried on by them or any of them acting for all”. A
Partnership Firm in India is a type of Joint-Venture Company. The owners
of a partnership firm are individually known as partners and collectively
known as a firm. A minimum of two people are required to start a
partnership business. The maximum number of partners is ten. The partners
have unlimited liability and can share profits in any mutually agreed ratio.
The registration of a partnership firm is not compulsory.
Joint-Venture Company in India
A Joint Venture (JV), as the name suggests, is a new business entity created
through a partnership between foreign and Indian investors, in which the
partners jointly share the profits, losses, management responsibilities, and
operation expenses. The advantages of joint ventures are that the foreign
company can utilize the well-established contact network, distribution,
marketing channels, and the available financial resources of the Indian
partner. A JV also offers the investors to jointly manage the risks involved
with the new business and limit their individual exposure by sharing the
liabilities.
 
Partnership Firm in India
A partnership is “the relation between people who have agreed to share the
profits of the business carried on by them or any of them acting for all”. A
Partnership Firm in India is a type of Joint-Venture Company. The owners of
a partnership firm are individually known as partners and collectively known
as a firm. A minimum of two people are required to start a partnership
business. The maximum number of partners is ten. The partners have
unlimited liability and can share profits in any mutually agreed ratio. The
registration of a partnership firm is not compulsory.
 
One Person Company in India
A One Person Company (OPC) is a newly introduced type of company in
India since 2013. Incorporating an OPC is only permitted to a resident of
India. No foreigner can incorporate an OPC. An OPC can be owned by a
single owner. It was introduced to encourage individual entrepreneurs to start
their own business. This is a type of a private company and likewise can
feature as a separate legal entity. The liability of the owner is limited.
 
Sole Proprietorship in India
A sole proprietorship in India is a form of a business entity where a single
individual handles the entire business organization. The individual is the sole
recipient of all profits and bearer of all losses to the business. The liability of
the owner is unlimited. A Sole Proprietorship business is suitable where the
market is limited, localized, and where customers give importance to
personal attention. This type of company is suitable when the capital required
is limited and the risk- involvement is not huge. There are less legal
formalities as proprietorship does not have a legal existence.
 
Branch Office in India
Foreign companies engaged in manufacturing and trading activities
abroad can set up Branch Offices in India. Branch Offices are not
allowed to carry out manufacturing activities on their own but can
subcontract those to an Indian manufacturer. Before commencing
operations, the branch office requires an approval from the Reserve
Bank of India (RBI). Commercial activities of any nature are not allowed
for a Branch Office.
 
Non-Government Organization (NGO) in India
Non-Government Organization (NGO) or Nonprofit Company is a
citizen-based association that operates independently of the
government, usually to serve some social purpose. These organizations
are not intended towards gaining profits and work for promoting a cause
or development projects for the betterment of society.