The various Types of Business Entities in India

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

Lets look at best man 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 numerous government departments are required only on a need basis. For example, if the business provides services and service tax is applicable, then registration with the service tax department is required. Same is true for other indirect taxes like VAT, Excise many others. It is not possible to transfer the ownership of a Sole Proprietorship from one person to another. However, assets of which firm may be sold from one person a brand new. Proprietors of sole proprietorship firms have unlimited business liability. This is the reason why 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 subject to maximum of 20 partners. A partnership deed is prepared that details the total amount of capital each partner will contribute to 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 based upon The Indian Partnership Act. A partnership is also permitted to purchase assets in the name. However the one who owns such assets will be partners of the firm. A partnership may/may not be dissolved in case of death of this partner. The partnership doesn’t really have its own legal standing although other Permanent Account Number (PAN) is allotted to the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be belonging to meet business liability claims of the partnership firm. Also losses incurred as being a result act of negligence of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or is almost certainly not 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 along with ROF, it aren’t treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of law.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often a new type of 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 cover. The maximum liability of each partner a great LLP has limitations to the extent of his/her purchase of the rigid. 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 personal or Public Limited Company as well as Partnership Firms may be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is significantly like a C-Corporation in north america. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, pet owners (members) become shareholders of this company. Somebody Limited Clients are a separate legal entity both the actual strategy taxation and also liability. The private liability from the shareholders is fixed to their share funding. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are prepared and signed by the promoters (initial shareholders) on the company. Of those ingredients then sent to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To tend the day-to-day activities of the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden assigned a Partnership and LLP. For example, the Board of Directors must meet every quarter and at least one annual general meeting of Shareholders and Directors should be called. Accounts of an additional must prepare yourself in accordance with Taxes Act as well as Companies Undertaking. Also Companies are taxed twice if income is to be distributed to Shareholders. Closing a Private Limited Liability Partnerhsip Registration in India Online Company in India is a tedious process and requires many formalities to be completed.

One the positive side, Shareholders of such a Company are able to turn without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since it allows great degree of separation between ownership and operations.

Public Limited Company

Public Limited Company is similar to a Private Company with no difference being that number of shareholders of the Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either submitted to a stock market or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely throughout the stock swapping. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors in the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case associated with Private Company, a Public Limited Company is also a separate legal person, its existence is not affected from your death, retirement or insolvency of any of its shareholders.