The different 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 agency. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice on the business entity is right down to various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at all of these businesses 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 repair tax is applicable, then registration with the service tax department is required. 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 person another. However, assets of those firm may be sold from one person to another. Proprietors of sole proprietorship firms have unlimited business liability. This signifies 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 amazed capital each partner will contribute towards 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 owner of 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 used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be attached with meet business liability claims of the partnership firm. Also losses incurred outcome act of negligence of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or might 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 an issue ROF, it most likely is not treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be a new form 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 purchase of 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 Online LLP Formation in India. A private or Public Limited Company as well as Partnership Firms may 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 join to company shares. On subscribing to shares, owners (members) become shareholders of the company. A private Limited Clients are a separate legal entity both must taxation as well as liability. Private liability of this shareholders is restricted to their share monetary. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are positioned and signed by the promoters (initial shareholders) within the company. Fundamental essentials 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 non-public Company has more compliance burden assigned a Partnership and LLP. For example, the Board of Directors must meet every quarter and you ought to annual general meeting of Shareholders and Directors must be called. Accounts of the company must prepare in accordance with Tax 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 associated with Company are able to turn without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses are usually Private Companies since it allows great degree of separation between ownership and operations.

Public Limited Company

Public Limited Company is related to a Private Company with no difference being that regarding shareholders of a Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either submitted to a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely close to stock convert. 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 Clients are also a separate legal person, its existence is not affected the actual death, retirement or insolvency of some of its stakeholders.