The different Types of Business Entities in India

Doing business in India requires one to select a type of business organization. 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 on the business entity is reliant on 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 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 various government departments are required only on a need basis. For example, generally if the business provides services and service tax is applicable, then registration with the service tax department is imperative. Same is true for other indirect taxes like VAT, Excise thus. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to person another. However, assets of those firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This mean 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 prone to maximum of 20 partners. A partnership deed is prepared that details the total amount of capital each partner will contribute towards 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 in order to purchase assets in the name. However internet websites such assets include the 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 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 linked with 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 with the ROF, it is probably not treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be 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 policy cover. The maximum liability of each partner within an LLP has limitations to the extent of his/her investment in the tone. An LLP has its own Permanent Account Number (PAN) and legal status. LLP Registration Online in India also provides protection to partners for illegal or unauthorized actions taken by other partners of the LLP. Somebody or Public Limited Company as well as Partnership Firms might be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much like a C-Corporation in north america. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, pet owners (members) become shareholders of the company. Somebody Limited Clients are a separate legal entity both must taxation and also liability. The private liability of the shareholders is limited 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 Piece of Association are able and signed by the promoters (initial shareholders) on the company. All of these then sent to the Registrar along with applicable registration fees. Such company can have 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 when comparing a Partnership and LLP. For example, the Board of Directors must meet every quarter and looking after annual general meeting of Shareholders and Directors should be called. Accounts of the company must be prepared in accordance with Tax 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 the positive side, Shareholders of associated with Company can go up without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses are usually Private Companies since it allows great greater level separation between ownership and operations.

Public Limited Company

Public Limited Company is related to a Private Company utilizing difference being that associated with shareholders connected with Public Limited Company can be unlimited having a minimum seven members. A Public Company can be either submitted to a stock market or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely on the stock swapping. Such a company requires more public disclosures and compliance from the 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 a separate legal person, its existence is not affected by the death, retirement or insolvency of any one its shareholders.