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 dependent 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 won’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 with various government departments are required only on a need basis. For example, in case the business provides services and repair tax is applicable, then registration with the service tax department is compelled. 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 individual another. However, assets of such firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This signifies 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 amazed capital each partner will contribute into 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 as per The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However web-sites such assets become the 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 other Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be linked with 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 may 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 may not be 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 guidelines.

Limited Liability Partnership

Limited Liability Partnership (LLP Incorproation Online in India) 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 protection. The maximum liability of each partner in an LLP is restricted to the extent of his/her investment in the tone. 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 private or Public Limited Company as well as Partnership Firms can be converted into 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 subscribe to company shares. On subscribing to shares, the owners (members) become shareholders of this company. A non-public Limited Company is a separate legal entity both treated by simply taxation as well as liability. The personal liability from the shareholders is bound to their share funding. A private limited company could be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are positioned and signed by the promoters (initial shareholders) with the company. All of these then listed in the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To care for the day-to-day activities within the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden n comparison to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and a minumum of one annual general meeting of Shareholders and Directors end up being called. Accounts of the company must prepare yourself in accordance with Tax Act as well as Companies Act. 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 the positive side, Shareholders of such a Company can go up without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since permits great amount separation between ownership and operations.

Public Limited Company

Public Limited Company is similar to a Private Company utilizing difference being that regarding shareholders connected with Public Limited Company can be unlimited along with 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 business to trade its shares freely throughout the stock exchange. Such a company requires more public disclosures and compliance from the government including appointment of independent directors throughout the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case associated with an Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected the particular death, retirement or insolvency of its shareholders.