Weapon of choice

With great competition comes even greater creativity. Such is the world of the modern day entrepreneur. With more and more people taking to experimenting and creating something new, rather than “settling down” post academia, the creative workspace is now a battle field, and the structure of commerce chosen is the entrepreneur's weapon of choice.

It's true that a good idea can make a great business. However, an idea is intangible and hence requires a structure or a body through which it can manifest itself. Hence the choice of the structure is a crucial one as it would define the business' identity and operational style for all of its existence.

What with already existing structures (such as Hindu Undivided Families, Sole Proprietorship and Partnership) newer concepts (Companies, Corporations, Banks and Depositories) and prospective inductions (one person company), it is very easy to be bewildered about what structure suits you best.

Starting with Sole Proprietorship and Hindu Undivided Family business

Without further ado, let's delve into the essentials:

Sole Tradership: Now known as “Sole Proprietorship”, it probably is the most ancient but yet very relevant form of commerce.

Ironically, the simplicity of this form is its greatest boon and bane. There is absolute freedom of conducting business. A sole trader faces very minimal regulations compared to the other business structures. However, the complexity in terms of volumes and multitasking in today's commerce is tremendous and it is virtually impossible for a one-man-show to carry out a significantly scalable business. So entrepreneurs be warned, a sole proprietorship may not be feasible for you if your ambition is to scale your business. Alternatively, you can start as a proprietorship and convert your business into a Company or an LLP later on.

Hindu Undivided Family: Another ancient form of commerce, the Hindu Undivided Family (HUF) business works around a tradition rooted in hierarchy. The male (and now even female) members of a biological family run a business together and hand it down from generation to generation.

Its advantages again lie in terms of unlimited operational flexibility and increased capacity in terms of handling greater volumes vis-à-vis a sole proprietorship. Besides, when the management of a business is guided by motives greater than monetary interests alone, the business might be more efficient.

Like you are born a Hindu if your parents are Hindu, you are born a member of your Hindu Undivided Family. Though this is not really an option for a new age entrepreneur, you can always bring a new business you want to start within your HUF, if the HUF has an allied business activity.

For instance, if your family business is trading in wood and you want to start a business in online retail of wooden furniture, you can bring your furniture under the umbrella of your family business.

In the next part, we shall be talking about Partnerships, Companies (both Pvt. Ltd. and Public Limited) and the new kid on the block – Limited Liability Partnerships (LLPs).

In the spirit of a great year to come, we wish you a prosperous and fulfilling new year.

To be continued

(This column has been contributed by vakilsearch (www.vakilsearch.com), an online legal guidance and legal solutions partner)