Doing business in India requires one to choose a type of business company. 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 belonging to the business entity is an issue of various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at best man entities in detail

Sole Proprietorship

This is the most easy business entity to determine in India. It does not have its own Permanent Account Number (PAN) and the PAN of the owner (Proprietor) acts as the PAN for the Sole Proprietorship firm. Registrations several 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 or anything else. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of which firm may be sold from one person 1. Proprietors of sole proprietorship firms infinite business liability. This is the reason why 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 subjected to maximum of 20 partners. A partnership deed is prepared that details you may 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 reported by The Indian Partnership Act. A partnership is also permitted to purchase assets in the name. However internet websites such assets become 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 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 with 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 is probably 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 law.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often a new involving business entity established by an Act of the Parliament. Online LLP Incorporation in India allows members to retain flexibility of ownership (similar to Partnership Firm) but provides a liability protection. The maximum liability of each partner within an LLP has limitations to the extent of his/her purchase of 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 personal 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 significantly like a C-Corporation in the. Private Limited Company allows its owners to join to company shares. On subscribing to shares, owners (members) become shareholders on the company. A personal Limited Clients are a separate legal entity both must taxation and also liability. The individual liability from the shareholders is restricted to their share finances. A private limited company could be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are able and signed by the promoters (initial shareholders) for this company. Fundamental essentials then published to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To care for the day-to-day activities with the company, Directors are appointed by the Shareholders. A non-public 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 be ready in accordance with Taxes Act as well as 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 good side, Shareholders of this Company can change without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses are usually Private Companies since it allows great a higher separation between ownership and operations.

Public Limited Company

Public Limited Company is similar to a Private Company with the difference being that number of shareholders of a typical Public Limited Company could be unlimited with a minimum seven members. A Public Company can be either mentioned in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely more than a stock return. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors in 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 Clients are also an unbiased legal person, its existence is not affected the actual death, retirement or insolvency of any one its shareholders.

The different Types of Business Entities in India

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