Choosing the Right Business Entity (Part 1)

When we talk about starting a business with business partner we, at one point we will be faced with the question: what business entity is right for our business? Like raising a child, of course we want to make sure the business runs smoothly and can see it grow up. Maybe we want to start from a small scale or maybe go straight to a large scale. Whatever your decision, choosing the right business entity is one thing to think about before starting a business.

The forms of business entities that are known in Indonesia are quite diverse. However, before we go there, it's a good idea to talk first about the things that are the basis for consideration for choosing it, namely:

1. How much authority and responsibility will be borne by you and business partner You?

The form of business entity that you choose has implications for the responsibility of the business owner in terms of decision making, along with the authority that will be obtained.

2. What is your financial condition and what kind of business entity are you able to fulfill?

In Indonesia, sometimes there are several regulations regarding the minimum authorized capital required to establish a business entity, for example a Limited Liability Company (PT) which must be minimum authorized capital of Rp. 50 million, excluding the cost of its establishment services.

So, we also need to see how our financial condition is to meet the requirements for establishing a business entity, whatever form you choose. Of course, the establishment process will also have certain costs, so it is important for you to really know whether your budget is sufficient for these purposes.

3. What line of business will you be in?

There are several fields of business that by law must be in the form of a certain business entity, so there is no other choice you can take if you want to run that particular business.

The three things above can be initial questions that you can discuss with business partner to determine the best form of business entity for your business.

In Indonesia itself, there are several forms of business entities that can be chosen. The form of business entity is divided into two, namely: a business entity that is not a legal entity, such as sole proprietorships, civil partnerships, firms, and CVs; and business entity in the form of a legal entity, namely PT, Foundation, and Cooperative.

The difference between the two lies in whether or not there is a separation of wealth. For business entities in the form of legal entities, there is a separation between company assets and company owners. For a legal entity such as a PT, if the PT suffers a loss, the personal finances of the company owner are relatively safe.

Meanwhile, for a business entity that is not a legal entity, there is no separation between the two, which means that if the company suffers a loss, the owner of the company is responsible for the loss with his personal money.

This can be an answer to questions about the responsibility and authority of the owner of the company. If you want to ensure that your responsibilities to the company in terms of finances will not be mixed with personal finances, then you can choose to run a business entity in the form of a legal entity.

We will discuss further about the types of business entities, whether in the form of legal entities or not, we will discuss in the same article Part 2 and Part 3.

- This article was written by Virra from Klikonsul. Klikonsul is a legal and business consultant in the creative economy, including information technology. We can arrange contracts, take care of permits, set up companies, to help with business planning. Further information can be read at http://klikonsul.com.