The different 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 reliant on 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 to determine 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 with various government departments are required only on a need basis. For example, if ever the business provides services and service tax is applicable, then registration with the service tax department is compelled. Same is true for other indirect taxes like VAT, Excise or anything else. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to person another. However, assets of such firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This radically, and 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 subject to maximum of 20 partners. A partnership deed is prepared that details amazed capital each partner will contribute to 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 permitted to purchase assets in the name. However internet websites such assets will be 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 belonging 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 making use of 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 within a court of law.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often 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 policy cover. The maximum liability of each partner within an LLP is restricted to the extent of his/her purchase of the rigid. 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 permitted 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 to join 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 in terms of taxation and also liability. Individual liability within the shareholders is limited to their share funding. A private limited company can be formed by registering business name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association have decided 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 can have between 2 to 50 members. To tend the day-to-day activities of the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden when compared to 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 business must prepare in accordance with Taxes Act and also Companies Federal act. 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 this type of Company can change without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses have got Private Companies since permits great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company utilizing difference being that number of shareholders of a real Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either mentioned in a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely close to stock swapping. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors throughout the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case in a Private Company, a Public Limited Company is also an independent legal person, its existence is not affected by the death, retirement or insolvency of its investors.