The various Types of Business Entities in India

Doing business in India requires one to select a type of business body. In India one can choose from five different types of legal entities to conduct web business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice of the business entity is dependent on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at each of these entities in detail

Sole Proprietorship

This is the most easy business entity set up in India. It doesn’t need 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 applicable. Same is true for other indirect taxes like VAT, Excise and. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to individual another. However, assets of such firm may be sold from one person to another. Proprietors of sole proprietorship firms have unlimited business liability. This mean that 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details the quantity 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 reported by The Indian Partnership Act. A partnership is also permitted to purchase assets in its name. However web pages such assets are 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 a unique 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 to meet business liability claims of the partnership firm. Also losses incurred as being a result 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 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 from a court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often a new involving 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 immunity. The maximum liability of each partner a great LLP Registration Online in India has limitations to the extent of his/her investment in 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. A personal 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 much like a C-Corporation in u . s. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, pet owners (members) become shareholders of the company. A private Limited Clients are a separate legal entity both in terms of taxation and also liability. Private liability of this shareholders is limited to their share cash. A private limited company can be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are able and signed by the promoters (initial shareholders) of the company. These are then submitted to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To tend to the day-to-day activities for this company, Directors are appointed by the Shareholders. A private Company has more compliance burden assigned 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 the company must get ready in accordance with Taxes Act and also Companies Undertaking. 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 such a Company can change without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since it allows great degree of separation between ownership and processes.

Public Limited Company

Public Limited Company is compared to a Private Company utilizing difference being that associated with shareholders of the Public Limited Company can be unlimited with a minimum seven members. A Public Company can be either mentioned in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely on the stock convert. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors on 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 impartial legal person, its existence is not affected from your death, retirement or insolvency of its investors.