The various Types of Business Entities in India

Doing business in India requires one to pick a type of business body. In India one can choose from five different types of legal entities to conduct business enterprise. 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 all of these businesses entities in detail

Sole Proprietorship

This is the most easy business entity to determine 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, in case the business provides services and repair tax is applicable, then registration with the service tax department is required. 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 in order to person another. However, assets of the firm may be sold from one person 1. 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details the amount of 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 based upon The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However the owner of 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 separate 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 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 an issue ROF, it may not be treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is really 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 cover. The maximum liability of each partner inside LLP is bound to the extent of his/her investment in the tone. An LLP has its own Permanent Account Number (PAN) and legal status. Online LLP Formation in India also provides protection to partners for illegal or unauthorized actions taken by other partners of the LLP. Someone or Public Limited Company as well as Partnership Firms are allowed to be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much a C-Corporation in u . s. 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 when considering taxation and also liability. The individual liability of this shareholders is proscribed to their share finances. A private limited company could be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are set and signed by the promoters (initial shareholders) on the company. These are then published to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To care for the day-to-day activities of the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden n comparison to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and some form of annual general meeting of Shareholders and Directors must be called. Accounts of business must be ready in accordance with Income tax Act and also Companies Federal 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 type of Company can change without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses that are Private Companies since it allows great amount separation between ownership and processes.

Public Limited Company

Public Limited Company is related to a Private Company with no difference being that regarding shareholders of a real Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either listed in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely close to stock alternate. 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 associated with a Private Company, a Public Limited Clients are also a separate legal person, its existence is not affected the particular death, retirement or insolvency of any one its investors.