The various Types of Business Entities in India

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

Lets look at all of these businesses entities in detail

Sole Proprietorship

This is the most easy business entity set up in India. It doesn’t have its own Permanent Account Number (PAN) and the PAN of the owner (Proprietor) acts as the PAN for the Sole Proprietorship firm. Registrations different government departments are required only on a need basis. For example, when the business provides services and service tax is applicable, then registration with the service tax department is forced. 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 in order to individual another. However, assets of such firm may be sold from one person various. Proprietors of sole proprietorship firms have unlimited business liability. This is the reason why owners’ personal assets can 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 subjected to maximum of 20 partners. A partnership deed is prepared that details the total amount of 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 reported by 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 partner. The partnership doesn’t really have its own legal standing although an outside Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be connected to meet business liability claims of the partnership firm. Also losses incurred brought about by 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 your ROF, it most likely is not treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often 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 policy cover. The maximum liability of each partner within 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. Someone or Public Limited Company as well as Partnership Firms may be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much a C-Corporation in the. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, pet owners (members) become shareholders of the company. A private Limited Company is a separate legal entity both treated by simply taxation as well as liability. The individual liability of the shareholders is restricted to their share capital. A private limited company could be formed by registering business name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are prepared and signed by the promoters (initial shareholders) within the company. Usually are all products then sent to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To maintain the day-to-day activities in the company, Directors are appointed by the Shareholders. A private Company has more compliance burden when comparing 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 business must be ready in accordance with Income tax Act as well as Companies Conduct themselves. Also Companies are taxed twice if earnings are 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 this Company will vary without affecting the operational or legal standing of the company. Generally Venture Capital investors in order to invest in businesses in which Private Companies since it allows great amount separation between ownership and processes.

Public Limited Company

Public Limited Company is compared to a Private Company without the pain . difference being that associated with shareholders of a Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either placed in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely through the stock return. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case in a Private Company, a Public Limited Company is also an independent legal person, its existence is not affected by the death, retirement or insolvency of any of its stakeholders.