Pros and Cons of Different Business Structures in India

When starting a business one of the most important steps is selecting the important business structure. There are several types of business structures Liaison office, Branch office, Project office, Private limited company, and Limited liability partnership. Each of these has its advantages and disadvantages. So before deciding, it’s important to rule out any legal structure for business organizations that just wouldn’t work for the company.

In this article let's look at various business structures in India along with their advantages and disadvantages.

Liaison Office:

By establishing the liaison office, It’s primary purpose is to facilitate communication between foreign companies and Indian customers. However, the In India liaison office is restricted from commercial activities or generating customer invoices.

Advantages:

1. Easy & quick setup.
2. Low compliance requirements
3. There is no income tax liability as no income is generated.

Disadvantages:

1. Cannot earn revenue in India.
2. Limited scope of operations.
3. Cannot engage in commercial transactions.

Branch Office:

A person who lives outside of India can open a branch office only if he meets certain requirements, like a profit record over the last five years and a net worth of at least USD 100,000 or equivalent.

Advantages:

1. Can engage in commercial activities.
2. Direct control by the parent company.
3. Allowed to earn revenue in India.

Disadvantages:

1. Requires RBI and ROC approvals.
2. Higher compliance requirements.
3. Taxable on Indian income.

Project Office:

Project offices offer comprehensive support and efficient management to guarantee the accomplishment of certain initiatives. This organization is in charge of organizing and carrying out project management practices, as are other organizations.

Advantages:

1. Easier to set up than a branch office.
2. Suitable for project-specific activities.
3. Allows execution of contracts secured in India.

Disadvantages:

1. Taxable on project-related income.
2. Requires RBI and ROC approvals.
3. Activities restricted to project scope.

Private Limited Company:

This business entity is the type of entity that’s owned by an individual or a group of people. They share ownership through Shares, but unlike larger companies, these shares can’t be bought or sold publicly.

Advantages:

1. Limited liability protection for shareholders.
2. It is easier to raise funds through investors and financial institutions.
3. Separate legal entity status.

Disadvantages:

1. Higher compliance requirements.
2. More regulatory oversight.
3. Compulsory statutory requirements.

Limited Liability Partnership:

Partners in this kind of corporate structure have limited accountability for the debts and liabilities of the company. It safeguards the partner’s assets and restricts their liabilities.

Advantages:

1. Limited liability for partners.
2. Reduced compliance requirements compared to a private limited company.
3. Flexible management structure.

Disadvantages:

1. Highest corporate tax rate.
2. Limited ability to raise capital compared to a private limited company.
3. Not suitable for businesses seeking significant outside investment.

Conclusion:

Choosing the right business structure is a critical decision that can impact your company's success, growth, and legal standing in India. Each business form, whether a liaison office, branch office, project office, company subsidiary, or Limited liability partnership, has advantages and disadvantages.