The various Types of Business Entities in India
Doing business in India requires one to pick a type of business organization. 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 of the business entity is reliant on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at each of these entities in detail
This is the most easy business entity set up 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 different 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 imperative. Same is true for other indirect taxes like VAT, Excise or anything else. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of which firm may be sold from one person 1. Proprietors of sole proprietorship firms infinite business liability. This means that owners’ personal assets can be attached to meet business liability claims.
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 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 as per The Indian Partnership Act. A partnership is also permitted to purchase assets in its name. However web pages 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 applied for to insure 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 to 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 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 along with 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 in a court of statute.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm can be a new associated with business entity established by an Act of the Parliament. Online LLP Registration in India allows members to retain flexibility of ownership (similar to Partnership Firm) but provides a liability cover. The maximum liability of each partner a great LLP is bound to the extent of his/her purchase of the organisation. 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. Somebody 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 significantly like a C-Corporation in north america. Private Limited Company allows its owners to join to company shares. On subscribing to shares, the owners (members) become shareholders in the company. Somebody Limited Company is a separate legal entity both in terms of taxation and also liability. The personal liability from the shareholders is bound to their share monetary. A private limited company could be formed by registering company 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 get between 2 to 50 members. To tend the day-to-day activities with the company, Directors are appointed by the Shareholders. A private Company has more compliance burden when compared to 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 should be called. Accounts of this company must prepare in accordance with Tax Act and also Companies 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 this Company can change without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses which can be Private Companies since it allows great amount separation between ownership and processes.
Public Limited Company
Public Limited Company is related to a Private Company however difference being that connected with shareholders of a Public Limited Company could be unlimited with a minimum seven members. A Public Company can be either submitted to a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely through the stock return. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case associated with an Private Company, a Public Limited Clients are also an impartial legal person, its existence is not affected by the death, retirement or insolvency of its investors.