The various Types of Business Entities in India
Doing business in India requires one to select a type of business body. In India one can choose from five different types of legal entities to conduct business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice in the business entity is an issue of 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 to establish 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 with some other 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 applicable. Same is true for other indirect taxes like VAT, Excise thus. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of such firm may be sold from one person a brand new. Proprietors of sole proprietorship firms have unlimited business liability. This is the reason why 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 prone to maximum of 20 partners. A partnership deed is prepared that details the total amount 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 businesses The Indian Partnership Act. A partnership is also allowed to purchase assets in its name. However the one who owns such assets include 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 an outside Permanent Account Number (PAN) is allotted to the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be connected 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 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 aren’t 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 statute.
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 cover. The maximum liability of each partner in an LLP is proscribed 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. A person 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 much like a C-Corporation in the united states. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, owners (members) become shareholders of this company. An exclusive Limited Company is a separate legal entity both treated by simply taxation and also liability. Private liability within the shareholders is fixed to their share cash. A private limited company can be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association have decided and signed by the promoters (initial shareholders) on the company. Usually are all products then submitted to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To care for the day-to-day activities in the company, Directors are appointed by the Shareholders. Someone Company has more compliance burden if compared to the a Partnership and LLP Incorproation Online in India. 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 an additional must prepare yourself in accordance with Income tax Act as well as Companies Act. 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 such a Company will vary without affecting the operational or legal standing for the company. Generally Venture Capital investors in order to invest in businesses that are Private Companies since permits great amount separation between ownership and processes.
Public Limited Company
Public Limited Company is related to a Private Company with no difference being that connected with shareholders of a real Public Limited Company can be unlimited by using a minimum seven members. A Public Company can be either mentioned in a stock market or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely close to stock alternate. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors throughout the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case associated with Private Company, a Public Limited Company is also motivated legal person, its existence is not affected from your death, retirement or insolvency of some of its stakeholders.
