If you are already running some existing business OR you are planning to enter into new business/venture, then this article is for you.
In INDIA, you can run your business through following ways:-
- Sole Proprietorship
- One Person Company (OPC)
- Private Limited Company (PVT)
- Limited Liability Partnership (LLP)
Now here Sole Proprietorship and Partnership have one deadly feature called UNLIMITED LIABILITY. What does it mean? Let me give you an example.
If YOU are operating a business under Proprietorship OR Partnership model and if the business is suffering from losses, then Creditors/Banks/Investors/Others have right to recover their dues by disposing YOUR personal assets/investments (Fixed Deposit/Shares/LIC etc.) or of Partner. In simple words creditors can recover by selling YOUR personal belongings also, like Jewellery/TV/Refrigerator etc.
Hence doing business as Proprietor is very Risky!
Now is there any way out? How can YOU do business and also safeguard YOUR personal assets and investments? The answer is
Register your Business as One Person Company (OPC), Private Limited (PVT) or Limited Liability Partnership (LLP)as these Type of Business Registration have a feature called LIMITED LIABILITY in other words Insurance. How it works? Let’s have an example.
Normally every individual covers himself/herself by 3 types of Insurance Policies i.e. LIC, Mediclaim and Personal Accident. Every policy has its unique feature and in case any unfortunate event occurs, it will help, protect and cover the Policy holder and his/her family.
Many business houses to mitigate the risk of theft/fire etc. cover themselves with Fire/Theft Insurance. Now this type of Insurance Cover helps them only when the particular event occurs. However What if the business goes into Losses in case of normal business circumstances? Are they eligible to shield behind these types of Insurance Covers??? The answer is NO.
Hence OPC, PVT LTD, LLP Business registration works like Assets Protection Cover and is the Answer to help the Business Person mitigate the risk by ensuring that none of their Personal Assets are used by the Creditors if the company is in Losses
Now one may argue that this type of Registration have too much compliance taxation and paper work, it’s a headache for them. Agree to some extent with these types of opinion but do not forget that the Business will require a professional to help you with Balance Sheet and Tax Filings, and the amount involved is hardly anything compared to you putting your Personal Assets at Risk. Also these types of work can be outsourced by hiring professionals Like Us
So again we would like to reiterate that if YOU decide to do Business through Proprietorship or Partnership and in the event of loss, creditor’s disposes your personal assets/investments which you have accumulated over years by working Hard. Should you NOT protect all your Personal Assets by running business through OPC or PVT or LLP?
One is ready to pay Insurance Premium every year to renew his/her LIC, Mediclaim, Personal Accident, Fire/Theft policies. Similarly treat whatsoever additional amount you are paying for OPC/PVT/LLP as Insurance Premium Amount and do the business in Risk Free manner.