Basics of stock market 1: Starting and Formation of a Business
Here, I will be talking in-depth about how one will start a business right from the Idea phase. This explores how you will be approaching each stage in your business career and how you will tackle each one of them.
Table of contents
Introduction
There can be a lot of inspiration for someone to start a business. It can be your dream to make something which you are passionate about, or you don’t want to work under someone and be your own boss. So, the reason can be anything, but with focus, confidence, and discipline, anything is possible.
Before you dive into something, you really need to know what you’re up to. You don’t need that idea where no one has thought about. Think about the odds here, there are 8 billion people and you come up with that idea no one has thought about is rare.
The thing here is, you need to come up with an idea which you are interested in and how you can give value to others with your service. From here, you can see what other businesses are there in the market already and familiarize yourself with those businesses. Study these companies, see how they perform, how they exist, how their business model works.
Business plan
Making a strong business plan is very crucial in this step. You need to start planning for at least a year. If you’re starting your business tomorrow, right from tomorrow to the next year, write down what all your going to do, budget report, capital, and investments, expense, and profit, where to get the capital, what all milestones you’re going to achieve and how you’re going to achieve all of them. Make this as detailed as possible so that if a potential investor sees your report, he should be convinced that this business model will work out.
Choosing the business structure
Now you are one year down the line or in between this phase. To register your business with the government, you need to first define which type of business you’re into. This is the business structure you’re going to define. The business structure you choose influence everything from day-to-day operations to taxes and how much of your personal assets are at risk. You have the option to convert this at a later point in time, but there may be restrictions based on your location. So, let's explore the types of business structures.
Sole proprietorship
You can easily form this and as the name suggests, you have complete control over your business. From the start, if it's only you who have grown your business to this level, then automatically you are the sole owner of your business.
Here, you cannot produce a different business entity. This means, your business assets and personal assets and liabilities are treated as one. You are still able to get a trading name, but you can be held liable for debts and obligations of the business. Also, banks are hesitant to give loans to a sole proprietorship business owner.
This can be good for low-risk businesses and owners who want to test their business idea before forming a more formal business. One advantage is the registration charge, and the government regulations are minimum in this structure. You need to go to the local authority, which is the municipality, gram panchayat for registrations. This model is best if you have just 5-10 employees involved.
Partnership
This is the simplest structure of you have a friend or friends who are also involved in your business. While formation, they also own a part of the business. Here, the two types are limited partnership (LP) and limited liability partnership (LLP).
Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability have limited control over the company. Here, profits are passed through personal tax returns and the general partner must also pay self-employed taxes.
Limited liability Partnership (LLP) is similar to a limited partnership, but a limited liability to every owner. Here, all the partners are protected from debts against the partnership and wouldn’t be responsible for the actions of other partners. If you want to form the company just to build something and need to dissolve after that, then this type of model is the best suited.