The various Types of Business Entities in India

Doing business in India requires one to pick a type of business entity. 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 of the business entity is an issue of 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 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 with various 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 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 individual another. However, assets of those firm may be sold from one person diverse. Proprietors of sole proprietorship firms have unlimited business liability. This means 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 subjected to maximum of 20 partners. A partnership deed is prepared that details amazed 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 permitted to purchase assets in the name. However web-sites such assets become the partners of the firm. A partnership may/may not be dissolved in case of death of any 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 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 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 most likely is not treated as legal document. However, this does not prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of guidelines.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is 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 a great LLP is limited to the extent of his/her investment in the firm. 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 private or Public Limited Company as well as Partnership Firms might 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 to join to company shares. On subscribing to shares, owners (members) become shareholders in the company. A personal Limited Clients are a separate legal entity both in terms of taxation as well as liability. The private liability within the shareholders is limited to their share funding. A private limited company can be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are positioned and signed by the promoters (initial shareholders) for this company. Fundamental essentials then submitted to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To tend to the day-to-day activities in the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden when compared to a Partnership and Online LLP Formation in India. 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 this company must be ready in accordance with Taxes Act and also Companies Performance. Also Companies are taxed twice if earnings 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 Company can go up without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses which can be Private Companies since it allows great identify separation between ownership and processes.

Public Limited Company

Public Limited Company is compared to a Private Company without the pain . difference being that regarding shareholders of a typical Public Limited Company can be unlimited with a minimum seven members. A Public Company can be either indexed by a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely on the stock alternate. 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 Owner. As in the case associated with an Private Company, a Public Limited Clients are also motivated legal person, its existence is not affected the particular death, retirement or insolvency of any one its stakeholders.