Setting Up of Business Entities and Closure
Core concepts
This domain is procedural: choosing a business vehicle and executing the lifecycle correctly. Compare sole proprietorship, partnership, limited liability partnership, company, one person company, and joint ventures on liability, continuity, compliance cost and taxation. Know the incorporation workflow for companies and LLPs: name reservation, digital signature certificates, director identification numbers, SPICe forms, registered office requirements, and commencement of business. For LLPs, know the LLP agreement, partner contributions, and the role of designated partners.
Closure content covers voluntary winding up, members' and creditors' voluntary winding up, compulsory winding up by tribunal, striking off, and the fast-track insolvency route for small entities. Know the role of the liquidator, the final meeting, dissolution orders, and the consequences of defunct companies. Also cover conversion between forms (partnership to LLP, private to public) and the documents required.
Traps
- Confusing name reservation validity with incorporation deadlines.
- Assuming an LLP and a company have identical compliance calendars.
- Mixing voluntary striking off with winding up; striking off is not a distribution mechanism.
- Overlooking that a one person company needs a nominee.
- Forgetting that conversion changes liability and tax treatment, not just the name.
Worked example
A two-partner firm wants limited liability. Converting to an LLP preserves profit-sharing flexibility and limits liability, but requires an LLP agreement and designated partners, and the firm must settle its tax position on transfer of assets. If the partners instead incorporate a private company, they gain share-based ownership but accept stricter governance and dividend rules. Choose based on liability, funding needs and compliance appetite.
Sequence matters in exam answers: name, incorporation, post-incorporation compliance, then closure.