Business funding · Bootstrapping and Internal
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The most common way businesses are initially funded, the founder puts in their own money. Looks simple, but the legal treatment differs dramatically based on business structure. Pvt Ltd: treated as share capital. Proprietorship: just your own funds. Partnership: partner's capital. Getting this wrong creates loan vs capital issues, interest deduction problems, and gift tax concerns.
Sec 68; Companies Act 2013; LLP Act 2008; Director Loan
Right structure by entity type: Proprietorship: Just deposit in business current account. No separate documentation needed, it's your money in your business. File ITR: capital introduced shows in balance sheet. Partnership: as per partnership deed capital clause. Entry in capital account. No separate documentation if within deed provisions. LLP: supplementary agreement if beyond agreed contribution + update capital account. Pvt Ltd: share allotment is the ONLY clean route. Alternatives (director loan) have compliance burden. Pvt Ltd share allotment, the correct process: (1) Board Resolution approving allotment of X shares at ₹Y per share to Director Z. (2) Form PAS-3 filed with ROC within 30 days. (3) Share certificates issued. (4) Share register updated. (5) Form MGT-14 if special resolution. This entire process takes 1-2 days with a CA and costs ₹2,000-5,000 in professional fees.
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