The different Types of Business Entities in India

Doing business in India requires one to choose a type of business entity. 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 on the business entity is right down to 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 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, generally if 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 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 various. Proprietors of sole proprietorship firms infinite business liability. This signifies 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 you may capital each partner will contribute on 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 businesses The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However the one who owns 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 a separate Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be belonging to meet business liability claims of the partnership firm. Also losses incurred outcome 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 with the ROF, it aren’t treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often a new associated with 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 within LLP is restricted to the extent of his/her purchase of the rigid. 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 Formation in India. A person 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. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, the owners (members) become shareholders in the company. A non-public Limited Company is a separate legal entity both in terms of taxation as well as liability. Private liability of the shareholders is proscribed to their share monetary. A private limited company can be formed by registering business 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) within the company. All of these then submitted to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To maintain the day-to-day activities of the company, Directors are appointed by the Shareholders. A private Company has more compliance burden if compared to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and at least one annual general meeting of Shareholders and Directors must be called. Accounts of enterprise must be prepared in accordance with Tax Act and also Companies Performance. 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 the positive side, Shareholders of any Company can go up without affecting the operational or legal standing within the company. Generally Venture Capital investors prefer to invest in businesses in which Private Companies since permits great greater level separation between ownership and operations.

Public Limited Company

Public Limited Company will be a Private Company without the pain . difference being that connected with shareholders connected with Public Limited Company can be unlimited by using a minimum seven members. A Public Company can be either indexed by a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely through the stock alternate. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors within the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case associated with an Private Company, a Public Limited Company is also an independent legal person, its existence is not affected the particular death, retirement or insolvency of its shareholders.