The different 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 agency. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice in the business entity is right down to various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at these things entities in detail

Sole Proprietorship

This is the most easy business entity set up in India. It doesn’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 several government departments are required only on a need basis. For example, generally if 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 person to another. However, assets of this firm may be sold from one person to another. 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 you may 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 in order to purchase assets in its name. However internet websites such assets include the partners of the firm. A partnership may/may not be dissolved in case of death of this 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 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 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 an issue 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 the court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be 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 within LLP has limitations to the extent of his/her purchase of the firm. An Online LLP Registration Procedure India 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 personal or Public Limited Company as well as Partnership Firms can be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much a C-Corporation in north america. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, the owners (members) become shareholders on the company. A non-public Limited Company is a separate legal entity both must taxation as well as liability. Individual liability among the shareholders is limited to their share funding. A private limited company could be formed by registering business 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) of the company. These are then sent to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To look after the day-to-day activities in the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden when comparing 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 the company must be prepared in accordance with Taxes Act as well as 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 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 permits great identify separation between ownership and processes.

Public Limited Company

Public Limited Company is a Private Company with the difference being that regarding shareholders of the Public Limited Company can be unlimited having a minimum seven members. A Public Company can be either placed in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely on the stock swapping. 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 in a Private Company, a Public Limited Company is also an impartial legal person, its existence is not affected by the death, retirement or insolvency of any of its shareholders.