The different Types of Business Entities in India

Doing business in India requires one to select a type of business entity. 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 on the business entity is obsessed with 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 to establish in India. It doesn’t involve its own Permanent Account Number (PAN) and the PAN of the owner (Proprietor) acts as the PAN for the Sole Proprietorship firm. Registrations numerous government departments are required only on a need basis. For example, if the business provides services and repair tax is applicable, then registration with the service tax department is compelled. 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 individual another. However, assets of which firm may be sold from one person 1. 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 be subject to maximum of 20 partners. A partnership deed is prepared that details the total amount of capital each partner will contribute towards partnership. It also details how much profit/loss each partner will share. Working partners of the partnership are also allowed to draw a salary in accordance with The Indian Partnership Act. A partnership is also permitted to purchase assets in the name. However internet websites 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 used on 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 outcome act of negligence of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or may 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 may not be 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 policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often a new form of 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 program. The maximum liability of each partner within an LLP is proscribed to the extent of his/her investment in the tone. 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 Online LLP Formation in India. A personal 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 significantly like a C-Corporation in the united states. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, the owners (members) become shareholders belonging to the company. A personal Limited Company is a separate legal entity both the actual strategy taxation and also liability. The private liability of this shareholders is bound to their share finances. A private limited company could be formed by registering the 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) within the company. Of those ingredients then submitted to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To tend the day-to-day activities in the 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 must be called. Accounts of an additional must prepare yourself in accordance with Tax Act as well as Companies Conduct themselves. 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 associated with Company can go up without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses have got Private Companies since it allows great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company utilizing difference being that regarding shareholders connected with Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either placed in a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely through the stock convert. 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 Ceo. As in the case of a Private Company, a Public Limited Company is also an independent legal person, its existence is not affected coming from the death, retirement or insolvency of any one its shareholders.