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 agency. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice of 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 to determine 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 with some other government departments are required only on a need basis. For example, if ever the business provides services and repair tax is applicable, then registration with the service tax department is forced. Same is true for other indirect taxes like VAT, Excise or anything else. 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 various. Proprietors of sole proprietorship firms infinite 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 subject to maximum of 20 partners. A partnership deed is prepared that details amazed 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 allowed to purchase assets in the name. However the one who owns such assets include 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 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 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 most likely is not treated as legal document. However, this does not prevent either the Partnership firm from suing someone or someone suing the partnership firm in the 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 a great LLP is limited to the extent of his/her purchase of the firm. 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 are permitted to be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much like a C-Corporation in north america. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, owners (members) become shareholders of the company. Somebody Limited Clients are a separate legal entity both in terms of taxation as well as liability. Private liability among the shareholders is restricted to their share funding. A private limited company can 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. These are 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 with the company, Directors are appointed by the Shareholders. A private Company has more compliance burden assigned a Partnership and Online LLP Registration in India. 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 enterprise must prepare in accordance with Taxes Act and also Companies Performance. 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 such a Company are able to turn without affecting the operational or legal standing of the company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since permits great greater level separation between ownership and operations.

Public Limited Company

Public Limited Company will be a Private Company utilizing difference being that quantity of shareholders of a real Public Limited Company can be unlimited having a minimum seven members. A Public Company can be either mentioned in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely on 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 Private Company, a Public Limited Clients are also motivated legal person, its existence is not affected the particular death, retirement or insolvency of each of its stakeholders.