The different Types of Business Entities in India

Doing business in India requires one to select a type of business entity. In India one can choose from five different types of legal entities to conduct industry. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice on the business entity is dependent on 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 set up in India. It does not have its own Permanent Account Number (PAN) and the PAN of the owner (Proprietor) acts as the PAN for the Sole Proprietorship firm. Registrations several government departments are required only on a need basis. For example, generally if 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 thus. It is not possible to transfer the ownership of a Sole Proprietorship from one person to another. However, assets of which firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite 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 be subject to maximum of 20 partners. A partnership deed is prepared that details you may capital each partner will contribute on 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 in accordance with The Indian Partnership Act. A partnership is also permitted to purchase assets in the 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 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 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 may 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 policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often 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 is limited to the extent of his/her investment in the set. An LLP has its own Permanent Account Number (PAN) and legal status. LLP Incorproation Online in India also provides protection to partners for illegal or unauthorized actions taken by other partners of the LLP. A private or Public Limited Company as well as Partnership Firms might be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much a C-Corporation in u . s. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, pet owners (members) become shareholders belonging to the company. Somebody Limited Company is a separate legal entity both when considering taxation and also liability. Individual liability from the shareholders is proscribed to their share funding. 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 able and signed by the promoters (initial shareholders) with 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 to the day-to-day activities within the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden if compared to the 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 end up being called. Accounts of enterprise must be ready in accordance with Income tax Act and also 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 good side, Shareholders of associated with Company are able to turn without affecting the operational or legal standing for the company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since it allows great identify separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company without the pain . difference being that regarding shareholders of the Public Limited Company can be unlimited along with a minimum seven members. A Public Company can be either placed in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely on the stock return. 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 Ceo. As in the case associated with a Private Company, a Public Limited Company is also an independent legal person, its existence is not affected the particular death, retirement or insolvency of some of its shareholders.