The different Types of Business Entities in India

Doing business in India requires one to pick a type of business thing. In India one can choose from five different types of legal entities to conduct industry. 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 to determine 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 some other 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 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 person to another. However, assets of this firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This means that 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 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 as per The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However the owner of 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 applied for to insure Permanent Account Number (PAN) is allotted to 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 due to 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 your ROF, it aren’t treated as legal document. However, this doesn’t 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) firm is a new regarding 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 inside LLP is limited to the extent of his/her purchase of the organisation. 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 Online LLP Incorporation in India. Somebody 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 much like 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 in the company. A private Limited Company is a separate legal entity both must taxation as well as liability. Individual liability among the shareholders is fixed to their share cash. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association have decided and signed by the promoters (initial shareholders) with the company. Fundamental essentials then submitted to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To look after 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 a minumum of one annual general meeting of Shareholders and Directors should be called. Accounts of an additional must prepare yourself in accordance with Taxes Act and also Companies Act. Also Companies are taxed twice if profits 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 any Company can go up without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses that are Private Companies since permits great degree of separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company without the pain . difference being that associated with shareholders of a typical Public Limited Company can be unlimited using 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 close to stock convert. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Chief executive officer. As in the case associated with an Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected by the death, retirement or insolvency of any of its shareholders.