The various Types of Business Entities in India

Doing business in India requires one to choose a type of business body. 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 of the business entity is obsessed with 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 establish 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 different government departments are required only on a need basis. For example, when 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 or anything else. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of the firm may be sold from one person 1. Proprietors of sole proprietorship firms have unlimited 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 subject to maximum of 20 partners. A partnership deed is prepared that details the total amount of 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 based upon The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However internet websites such assets always be partners of the firm. A partnership may/may not be dissolved in case of death in regards to a partner. The partnership doesn’t really have its own legal standing although other 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 outcome 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 along with ROF, it most likely is not treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of law.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is really 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 protection. The maximum liability of each partner in an 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. Online LLP Registration Procedure India also provides protection to partners for illegal or unauthorized actions taken by other partners of the LLP. A person or Public Limited Company as well as Partnership Firms can be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is significantly like a C-Corporation in u . s. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, pet owners (members) become shareholders of this company. A private Limited Clients are a separate legal entity both must taxation and also liability. Individual liability within the shareholders is proscribed to their share monetary. A private limited company could be formed by registering company 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) on the company. These are then submitted to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To tend to the day-to-day activities for this company, Directors are appointed by the Shareholders. Someone Company has more compliance burden n comparison 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 end up being called. Accounts of this company must prepare in accordance with Tax 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 this type of Company can go up without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses in which Private Companies since it allows great degree of separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company without the pain . difference being that number of shareholders connected with Public Limited Company could be unlimited having 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 organization to trade its shares freely through the stock exchange. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Chief executive officer. As in the case in a Private Company, a Public Limited Company is also an impartial legal person, its existence is not affected coming from the death, retirement or insolvency of its investors.