The different Types of Business Entities in India

Doing business in India requires one to pick a type of business company. In India one can choose from five different types of legal entities to conduct web business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice from the business entity is obsessed with various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at each of these entities in detail

Sole Proprietorship

This is the most easy business entity set up in India. It doesn’t involve its own Permanent Account Number (PAN) and the PAN of the owner (Proprietor) acts as the PAN for the Sole Proprietorship firm. Registrations with various government departments are required only on a need basis. For example, if ever the business provides services and repair tax is applicable, then registration with the service tax department is applicable. Same is true for other indirect taxes like VAT, Excise thus. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to person another. However, assets of the firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This means that owners’ personal assets could be attached to meet business liability claims.

Partnership

A partnership firm in India is governed by The Partnership Act, 1932. Two or more persons can form a Partnership be subject to maximum of 20 partners. A partnership deed is prepared that details you may capital each partner will contribute towards the partnership. It also details how much profit/loss each partner will share. Working partners of the partnership are also allowed to draw a salary businesses The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However web-sites such assets will be partners of the firm. A partnership may/may not be dissolved in case of death of partner. The partnership doesn’t really have its own legal standing although applied for to insure Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be attached to meet business liability claims of the partnership firm. Also losses incurred due to act of negligence of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or might not be registered with Registrar of Firms (ROF). Registration provides some legal protection to partners in case they have differences between them. Until a partnership deed is registered with the ROF, it are not treated as legal document. However, this does not prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of law.

Limited Liability Partnership

Limited Liability Partnership (LLP Formation Online in India) firm can be a new associated with business entity established by an Act of the Parliament. LLP allows members to retain flexibility of ownership (similar to Partnership Firm) but provides a liability program. The maximum liability of each partner inside LLP is limited to the extent of his/her purchase of the firm. An LLP has its own Permanent Account Number (PAN) and legal status. LLP also provides protection to partners for illegal or unauthorized actions taken by other partners of the LLP. A person or Public Limited Company as well as Partnership Firms are allowed to be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is in order to a C-Corporation in the particular. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, the owners (members) become shareholders in the company. A private Limited Clients are a separate legal entity both the actual strategy taxation as well as liability. The individual liability of the shareholders is limited to their share finances. A private limited company can be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are set and signed by the promoters (initial shareholders) for this company. These are then submitted to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To tend the day-to-day activities with the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden assigned a Partnership and LLP. For example, the Board of Directors must meet every quarter and looking after annual general meeting of Shareholders and Directors should be called. Accounts of enterprise must be prepared in accordance with Income tax Act as well as Companies Conduct themselves. Also Companies are taxed twice if income is to be distributed to Shareholders. Closing a Private Limited Company in India is a tedious process and requires many formalities to be completed.

One good side, Shareholders of any Company can go up without affecting the operational or legal standing of the company. Generally Venture Capital investors in order to invest in businesses are usually Private Companies since it allows great a higher separation between ownership and operations.

Public Limited Company

Public Limited Company will be a Private Company with the difference being that connected with shareholders of the Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either mentioned in a stock market or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely throughout the stock convert. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors throughout the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case associated with an Private Company, a Public Limited Clients are also a separate legal person, its existence is not affected by the death, retirement or insolvency of any one its stakeholders.