How to start a business without forming an entity?
Starting a Business Without Entity Formation
Today, hordes of entrepreneurs, enthusiasts, and especially businessmen outside India are interested in starting a business in India. Before even starting, they stumble on the very first step: entity formation. Entity formation brings with it a ton of tangential formalities and restrictions that can curb your energy to actually run your business.
There are various schools of thoughts w.r.t entity formation. Some believe entity formation is an absolute must, before starting a business, and that you should complete all regulatory activities (however perfunctory) to start on the right footing. Others are of the opinion that registering as a business entity will make their business structures rigid and distract them from the core work.
But these are only opinions. How then can you take informed decisions? This blog will help you do just that. If you are an entrepreneur outside India, wanting to start a business in India, read ahead; you might find just the inputs you need.
- What is an entity?
A business entity is an organization incorporated by a person a group of persons with the intention of conducting business. A business entity has a separate tax identity, and has to adhere to legal and regulatory compliance.
- Prerequisites for starting a business in India
From a regulatory perspective, authorities in India expect you to have the following prerequisites checked off before you can begin your India operations.
- A current account, to be used for the transactions of the business.
- Tax Registration, for filing taxes, claiming input tax credit, and comply with the tax regulations of India
- Business licence registration, so you are formally ‘fit’ to start and run a business in India.
While registering for a business licence, you also define the structure of your business entity.
Typically, business registrations fall into 3 broad types.
You can register your business as a corporation, which is an independent, legal entity that distinguishes between your personal and business assets. Your corporation is separate from your ‘self’. A registered business licence is a must for running a corporation.
Or you can register your business as a sole proprietorship, which is an unregistered business entity owned by one or two (married) individuals. You may need to obtain a business licence, depending on the nature of your business. From a taxation perspective, you don’t file separate returns for yourself and then again for the company.
Another type of business registration is the partnership model, in which two or more partners run the business and share the profits and the risks. A general partnership is an unregistered business entity. A flavour of the partnership model is the limited liability partnership, which is a registered business entity. In LLP, there are two or more liable partners who share the risks and burdens of managing the business, and another group of partners who are not actively involved in the operations but act only as the investors, thus limiting their risk and tax liability.
A caveat in all of this, though, is the restrictions imposed on overseas companies interested in starting a business in India. Overseas companies can only register as Private Limited or Limited corporations and not as sole proprietors or partners.
But what if you don’t want to register as a corporation just yet? What if you just want to test the waters, to try and break into the Indian markets? There are undeniable risks involved which you are not ready to absorb yet.
So how can foreign companies start a business in India? The answer is PEO.
- PEO and Business Operations
A Professional employer Organization (PEO) is a highly feasible starting point for small, medium and growing business looking to commence business operations in a new country, like India. The PEO acts as a legal employer for your employees in India. But that is only on paper and for the regulations. The actual employees are answerable to you, their true employer.
The best thing about a PEO for you is that they handle all the pain points of entity formation, business registration and licence acquisition. You just have to focus on running the operations. PEO is the answer to starting a business in India without entity formation.
- How to select a PEO?
Here are three quick factors to consider before selecting a PEO.
1. Local proximity
Choose a PEO situated closest to the location of your business. This is because the PEO will find the right resources for you within and around the location of your operations, by understanding the prevalent market conditions.
A PEO with experience in the industry understands business, and understands what offshore companies are looking for. They’ve been around longer, have gone through several fluctuations (either peaks or troughs) in the market and know exactly how to cope.
Depend on referrals. Look into the reviews the PEO company is getting from their clients. Also believe in your gut. Find out PEOs in India you can trust, who get what you’re trying to achieve.
- How Indcubate Helps Businesses Take Off
Through our Indcubate program, we help businesses start and scale up their business operations in India. Through iterations of understanding your objectives, assessing your goals, and considering your restrictions, we converge at the perfect plan for moving ahead. Through solid customer-centricity and experience, we help overseas companies not just meet their goals, but surpass them.