Choosing an entity requires many factors under consideration like initial funds required for capital investment, working capital requirement, risk and liability exposure, technological knowhow , taxation structure and business continuity. Generally a manageable small venture, typically like shops, freelance venture, graphic designers, business consultants or home based business owners does not require limited liability entity formation like LLP or private limited company.
A sole proprietorship business registration is only required for starting such a business which is easy to start and operate. Due to lack of specific statutes for sole proprietorship, the Statewide Shops and Establishment Act lays down the general guidelines for running a sole proprietorship. Getting Udayam certification and trade license issued by municipality is enough to establish the existence of small venture. And If the business operator interested in protecting the trade name then the name and logo can be registered through trade mark registration
It is important to choose the entity according to the business requirement and don’t get fancied with tag of private limited company or Limited liability partnership. Starting big without validating the market mechanics may invite more problems than solutions. Sometimes it might end up in complex procedures and compliance nightmares. An entrepreneur should always understand the beauty in starting small to get familiarize with the market and competitive environment.
The entrepreneur should familiarize with labour laws if he is operating the business with more employees. Social security legislations like Employees state insurance and payment of gratuity Act becomes mandatory if the firm is employing more than 10 employees. Compliance to Employee provident fund Act becomes mandatory if the employees reaches 20 or more employees. New legislation like POSH Act (Prevention of Sexual Harassment Act) requires the constitution of internal compliance Committee (ICC) if the business expands to more than 10 employees.
In sole proprietorship the business and the owner are considered as one , hence the business profits are considered as personal income of the proprietor. Small business can also choose presumptive tax schemes to avoid complex book keeping. GST registration is not mandatory if the business turnover is 40 lakhs for supply of goods and 20 lakhs for service providers. However this exemption is not applicable to the business that involves interstate trade or e-commerce trades. The entrepreneur should also aware of the industry specific laws and permits if the business is controlled under a regulated environment.