The various 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 business enterprise. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice in 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 to establish 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 with various government departments are required only on a need basis. For example, when the business provides services and repair tax is applicable, then registration with the service tax department is forced. 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 individual another. However, assets of the firm may be sold from one person diverse. Proprietors of sole proprietorship firms infinite business liability. This is the reason why 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 amount of 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 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 this partner. The partnership doesn’t really have its own legal standing although an outside 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 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 might 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 are not treated as legal document. However, this does not prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of legislated rules.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be a new type 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 within LLP has limitations to the extent of his/her investment in 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 Online LLP Registration Process in India. Someone or Public Limited Company as well as Partnership Firms are allowed to be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is in order to a C-Corporation in the particular. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, the owners (members) become shareholders in the company. A non-public Limited Company is a separate legal entity both must taxation and also liability. Private liability within the shareholders is bound to their share monetary. A private limited company can 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. Usually are all products then listed in the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To look after the day-to-day activities of the company, Directors are appointed by the Shareholders. Someone Company has more compliance burden if compared to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and looking after annual general meeting of Shareholders and Directors end up being called. Accounts of business must prepare yourself in accordance with Tax Act and also Companies Federal 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 good side, Shareholders of associated with Company is capable of turning without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses in which Private Companies since it allows great amount separation between ownership and operations.

Public Limited Company

Public Limited Company will be a Private Company utilizing difference being that connected with shareholders connected with Public Limited Company could be unlimited by using a minimum seven members. A Public Company can be either indexed by a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely throughout the stock convert. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors on the board, public disclosure of books of accounts, cap of salaries of Directors and Head honcho. 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 investors.