The different Types of Business Entities in India

Doing business in India requires one to pick 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 belonging to the business entity is obsessed with 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 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 with some other 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 or anything else. 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 various. 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 subjected 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 based upon The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However web pages such assets become 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 allotted to the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be connected 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 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 with the 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 is often 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 program. The maximum liability of each partner within LLP is limited 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 Registration Process in India. A personal or Public Limited Company as well as Partnership Firms might be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much like a C-Corporation in the. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, pet owners (members) become shareholders of this company. Somebody Limited Company is a separate legal entity both the actual strategy taxation and also liability. The private liability within the shareholders is limited to their share cash. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are set and signed by the promoters (initial shareholders) on the company. Usually are all products then sent to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To tend to the day-to-day activities with the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden n comparison to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and a minumum of one annual general meeting of Shareholders and Directors end up being called. Accounts of enterprise must be prepared in accordance with Taxes 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 the positive side, Shareholders of associated with Company can go up without affecting the operational or legal standing of the company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since it allows great identify separation between ownership and operations.

Public Limited Company

Public Limited Company is compared to a Private Company without the pain . difference being that regarding shareholders connected with Public Limited Company could be unlimited by using a minimum seven members. A Public Company can be either indexed by a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely close to stock swapping. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors within the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case in a Private Company, a Public Limited Clients are also an independent legal person, its existence is not affected from your death, retirement or insolvency of some of its stakeholders.