The various Types of Business Entities in India

Doing business in India requires one to pick a type of business body. In India one can choose from five different types of legal entities to conduct industry. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice on the business entity is dependent 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 set up in India. It doesn’t need 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 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 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 be subject to maximum of 20 partners. A partnership deed is prepared that details the quantity of 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 in accordance with The Indian Partnership Act. A partnership is also allowed to purchase assets in its name. However web-sites such assets are the partners of the firm. A partnership may/may not be dissolved in case of death of 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 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 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 an issue ROF, it may not be 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 (Online LLP Incorporation in India) firm is a new involving 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 a great LLP is limited 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 LLP. A personal 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 in order to a C-Corporation in north america. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, pet owners (members) become shareholders of the company. Somebody Limited Company is a separate legal entity both the actual strategy taxation as well as liability. Individual liability of this shareholders is restricted to their share finances. A private limited company can be formed by registering company 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) for this company. Fundamental essentials then published to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To tend to the day-to-day activities within the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden assigned 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 this company must get ready in accordance with Taxes Act as well as Companies Undertaking. 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 any Company can change 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 operations.

Public Limited Company

Public Limited Company is a Private Company utilizing difference being that associated with shareholders of the Public Limited Company can be unlimited by using a minimum seven members. A Public Company can be either submitted to a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely throughout the stock exchange. Such a company requires more public disclosures and compliance from the government including appointment of independent directors throughout the board, public disclosure of books of accounts, cap of salaries of Directors and Head honcho. As in the case associated with Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected by the death, retirement or insolvency of each of its shareholders.