There is no specific form of business determined in the law for setting up an e-commerce business in India. However, it is a necessity for every entrepreneur to know what all legal provisions he deemed to get fulfilled with respect to his new e-business entity and while choosing an appropriate form of business to run it legally in the country.
The foremost thing of setting up an e-commerce business in India is taking up a decision for a perfect legal framework which other than just enabling the entrepreneur for business growth prospects should also take care of his personal assets. Freshly scripted startup ideas and e-commerce opportunist always faces a dilemma to choose the most appropriate form of business out of Sole proprietorship /LLP or Company form for their business. In this article, we will take up this aspect to legality and will compare how one or the other form of business for e-commerce have opted.
Pros :
It’s true, that sole proprietorship for e-commerce stakes both the ownership and management of the business to a single individual. He is able to excise control and manage a feasible e-commerce business within a limited cost involved. For e-commerce opted as a proprietorship, the tax reporting also gets simplified, as the owner is not required to manage big entity records and only have to file returns in own personal name for income earned therein.
Cons :
Proprietorship for e-commerce would be a negative consideration if the personal assets of the moderator of business lie in danger. This means if anything happens on part of any business default all claims whether it be consumer claim, employee accidental claim or any incurred debts, all would be furnished from personal assets of the owner. Not only this, but the growth aspects of business also get limited with the credit history of the sole proprietor which also demerits the option.
Partnership form (LLP)
Pros :
The most important factor which influences an entrepreneur to opt a Limited Liability Partnership firm for e-commerce is its registration & compliance cost and the divisibility factor of ownership & claims of business on personal assets of the owner. In terms of growth prospects, LLP offers continuity to the business operations even on any default made or death of any of the partner involved. A partnership form enables the e-commerce entity to enter into contracts or hold any property or investment as a separate legal entity in its own name without any partner interference.
Cons :
To scale the e-commerce business network with LLP form is also limited if compared to other forms, as it limits the creditability of business to its asset holdings and the credit history of partners.(no VC funding ).
Company (LLC /OPC )
Pros :
Like LLP, a company form of business registered as an e-commerce entity permits the business to work as a separate legal entity. The company form enables an e-commerce operator to keep himself limited, on account of claims only up to the value of the investment made by him in the business. Company formats like One Person Company suffice the e-commerce operator with an option to hold the business as a sole proprietor and to represent himself as a sole director, while it also distinguishes the owner as separate legal entity saving his personal assets.
Cons :
For Company, regulations in terms of incorporation, audit, and taxation as compared to LLP or other forms for e-commerce is much more complex. Company structure if opted for e-commerce business involves the inclusion of more compliance cost and regulatory procedures. Also, other than LLP or proprietorship, it is necessary to comply with a minimum capital subscription, advance taxation, audits, meeting schedules and ROC compliances which makes the overall process more cumbersome for the e-commerce operator.
Conclusion :
If compared to all other business forms, it is advisable to go for Limited Liability Partnership (LLP) to start an e-commerce business. As the said format limits the owner’s compliances cost, audit requirements, ownership control, liability to towards external claims and enlarges growth aspects as compared to proprietorship or a limited company.