So, now that you have decided to take the road less travelled and are ready to take the plunge into the world of freelancing, there are certain things you should bear in mind apart from your style guides – time management, resource management, financial management and, most importantly, conforming to statutory norms.
Once you decide to fly your own way, you need to decide on whether you want to fly solo or with a flock; that is, you would have to decide whether you would be working as the sole owner of your proprietorship concern or partner with one or more like-minded people and set up a partnership or a private limited company.
Let us discuss the benefits and demerits so that you can choose for yourself. This post offers a quick overview of the various options for starting a business. You may have to discuss with an auditor for more details.
In a proprietorship concern, you are the king. Or the queen. You decide how, when and where. You do not have to share your spoils. And, taking up a GST registration for a proprietorship concern is a relatively hassle-free process. But the flipside is that the company starts and ends with you. And your personal assets are not differentiated from the assets of the company. Income tax is payable above the 5 lakh threshold. Also, the proprietorship company runs on your face value; that is, you will be able to procure work only from those who know you in person and not many publishing companies may be willing to entrust their work with a single person.
Once that office has been set up and your name board hangs proudly outside, you ought to take up a GST registration. There is a ceiling of Rs 20 lakhs beyond which GST registration becomes mandatory. But people are advised to take up registration even if they are below the limit as it may reflect a professional outlook.
With regard to a partnership company, you will have one or more partners who will share with you the burden of running a company and will work with you towards its progress. But you will not be able to enjoy the fruits of your labour completely because you will be allowed only 90% of the first 3 lakhs and 60% of the rest of your profit as salary. The rest will be taxable. Also, each partner is taxable individually.
The third option is the private limited company. You will have two or more directors. Although the formation of a private limited company and the procedures take up time, it is worth considering the benefits it offers. The face value of a private limited company certainly overrides that of any proprietary or partnership company. Also, the company and its directors are separate entities, and the remuneration of the directors is decided only by the board. Therefore you will be able to reap the benefits of your hard work better in a private limited company.
More details on GST registration in upcoming posts!
Raji Balachandar had been a full-time editor before she started managing her husband’s auditing firm. Raji keeps her editing interests alive by occasionally editing for her ex-colleagues and friends.