The various Types of Business Entities in India

Doing business in India requires one to choose a type of business organization. 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 belonging to the business entity is dependent 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 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 different government departments are required only on a need basis. For example, in case 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 thus. 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 1. Proprietors of sole proprietorship firms infinite business liability. This mean 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 prone to maximum of 20 partners. A partnership deed is prepared that details the quantity of capital each partner will contribute towards partnership. It also details how much profit/loss each partner will share. Working partners of the partnership are also allowed to draw a salary based upon The Indian Partnership Act. A partnership is also permitted to purchase assets in the name. However web-sites such assets become the 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 separate Permanent Account Number (PAN) is used on 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 due to 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 an issue ROF, it may not be treated as legal document. However, this doesn’t 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 (LLP) firm is a new form of business entity established by an Act of the Parliament. Online LLP Registration Process in India 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 has limitations to the extent of his/her investment in the firm. 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 can be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is in order to a C-Corporation in u . s. Private Limited Company allows its owners to join to company shares. On subscribing to shares, owners (members) become shareholders in the company. A private Limited Company is a separate legal entity both when considering taxation as well as liability. The private liability of this shareholders is bound to their share cash. A private limited company can be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are prepared and signed by the promoters (initial shareholders) on the company. These are then sent to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To look after the day-to-day activities in the company, Directors are appointed by the Shareholders. A private Company has more compliance burden n comparison 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 should be called. Accounts of business must be prepared in accordance with Income tax Act as well as Companies Performance. 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 go up without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since it allows great a higher separation between ownership and processes.

Public Limited Company

Public Limited Company is a Private Company utilizing difference being that quantity of shareholders connected with Public Limited Company can be unlimited along with a minimum seven members. A Public Company can be either placed in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely more than a stock alternate. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors in 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 the actual death, retirement or insolvency of any of its stakeholders.