The different Types of Business Entities in India

Doing business in India requires one to select a type of business thing. 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 Company. The choice belonging to the business entity is reliant on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at these things 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 different government departments are required only on a need basis. For example, if ever 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 the firm may be sold from one person to another. Proprietors of sole proprietorship firms have unlimited business liability. This radically, and 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 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 in order to purchase assets in its name. However web-sites such assets include the partners of the firm. A partnership may/may not be dissolved in case of death of a 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 attached with 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 making use of ROF, it may not be treated as legal document. However, this won’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 can be 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 program. The maximum liability of each partner within an LLP is limited to the extent of his/her purchase of the set. 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. Somebody 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 in order to a C-Corporation in the. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, the owners (members) become shareholders of this company. An exclusive Limited Company is a separate legal entity both must taxation as well as liability. The private liability of the shareholders is bound to their share capital. A private limited company can be formed by registering company 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 listed in the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To look after the day-to-day activities for this 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 must be called. Accounts of enterprise must prepare yourself in accordance with Income tax Act and also Companies Act. 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 this type of Company can change 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 permits great greater level separation between ownership and operations.

Public Limited Company

Public Limited Liability Partnerhsip Registration in India Online Company is similar to a Private Company without the pain . difference being that number of shareholders of a Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either placed in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely close to stock return. 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 Head honcho. As in the case of a Private Company, a Public Limited Company is also motivated legal person, its existence is not affected by the death, retirement or insolvency of each of its stakeholders.