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STARTING YOUR OWN BUSINESS ?
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SIX FACTORS TO CONSIDER
WHEN CHOOSING A BUSINESS ENTITY
LAW, RULES AND REGULATIONS
To start a business, you must comply with the local rules and regulations of the government. This might include the necessary permissions and permits required to start a business. Check if the business idea of yours is legal to run according to the law. Check for any special permissions and permits required to start business. Also, the safety of working environment or any other day to day operations of your business. Non compliances with the statute could lead to huge fines and penalty and hamper the success of the new business.
COST OF FORMATION AND
COMPLIANCE COST
The different legal structures each have differing set up procedures, cost and complexities involved. For example, while a sole trader is simple to set up and requires few reporting requirements, a more complex structure is like a Private limited company involves strict reporting requirements and must be set up by a consultant. Setting up cost and compliance cost of Sole Proprietorship, general Partnership is not much as compare to legal structure like Limited Liability Partnership or limited company.
TAX IMPLICATION
The legal structure of your business will have significant effects on the amount of tax you pay and the kinds of tax that you must pay. The entrepreneur must try to analyse the types of taxes, because there are a number of tax laws in the country which affect the functioning of business. Business has tax implications. Therefore, care should be taken about various types of taxes like GST, VAT, excise duty, service tax, Income Tax, Dividend distribution tax etc.
ABILITY TO RAISE CAPITAL
The next important factor that should be considered involves the funding of your business. You need to properly identify the sources through which you will be able to get the funding for your business. Moreover, it is better to have a plan so that the budget of a company can be properly maintained. while starting a business, the availability of alternatives to raise funds must be carefully analyzed. Funding is a major challenge for many entrepreneurs.
LIMITATION OF LIABILITY
Your choice of legal structure will have important implications on your potential legal liability. Considering the extent you need to be protected from personal legal liability is important before choosing a business structure, as a considerable advantage of a complex legal structure such as a company, is the protection from your personal assets becoming liable from any debts and losses incurred.
CONTINUITY OF EXISTENCE
It is important to consider how you see the business coming to a conclusion. If you wish for the business to be terminated when you personally wish for it to end, then becoming a sole trader is the most appropriate option. However, if you wish to secure your family’s financial future, it is more appropriate to select a legal structure that does not come to an end if you are incapacitated like body corporate.
