The various Types of Business Entities in India

Doing business in India requires one to pick a type of business organization. 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 from 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 set up 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 numerous government departments are required only on a need basis. For example, when the business provides services and service 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 in order to individual another. However, assets of those firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This means 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 subject to maximum of 20 partners. A partnership deed is prepared that details amazed capital each partner will contribute into 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 as per The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However the owner of such assets include 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 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 belonging to meet business liability claims of the partnership firm. Also losses incurred as being a result act of negligence of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or may 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 may not be treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is 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 immunity. The maximum liability of each partner inside LLP is restricted to the extent of his/her purchase of the set. 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 Formation Online in India. Someone or Public Limited Company as well as Partnership Firms may be converted to 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 to sign up to company shares. On subscribing to shares, pet owners (members) become shareholders belonging to the company. A private Limited Company is a separate legal entity both in terms of taxation and also liability. Private liability from the shareholders is limited 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 are positioned and signed by the promoters (initial shareholders) within the company. Fundamental essentials then published to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To maintain the day-to-day activities of the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden n comparison to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and you ought to annual general meeting of Shareholders and Directors must be called. Accounts of the company must prepare in accordance with Taxes Act as well as Companies Undertaking. 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 good side, Shareholders of associated with Company are able to turn without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses are usually Private Companies since it allows great a higher separation between ownership and operations.

Public Limited Company

Public Limited Company will be a Private Company utilizing difference being that number of shareholders of a real Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either listed in a stock market or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely through the stock swapping. Such a company requires more public disclosures and compliance from federal government 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 an impartial legal person, its existence is not affected coming from the death, retirement or insolvency of any one its stakeholders.