The different Types of Business Entities in India

Doing business in India requires one to select 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 organizations entities in detail

Sole Proprietorship

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 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 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 individual another. However, assets of those firm may be sold from one person various. Proprietors of sole proprietorship firms infinite business liability. This mean that 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 subject to maximum of 20 partners. A partnership deed is prepared that details amazed 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 in accordance with The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However web-sites such assets always be 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 allotted to 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 with 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 making use of ROF, it are not treated as legal document. However, this does not prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is really 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 program. The maximum liability of each partner inside LLP is restricted to the extent of his/her investment in the organisation. An Online LLP Registration in India 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 person or Public Limited Company as well as Partnership Firms are permitted to be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is similar to a C-Corporation in the particular. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, owners (members) become shareholders of this company. A personal Limited Clients are a separate legal entity both the actual strategy taxation and also liability. Private liability among the shareholders is bound to their share funding. A private limited company can 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) on the company. All of these then sent to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To tend to the day-to-day activities of the company, Directors are appointed by the Shareholders. A private Company has more compliance burden if compared to the 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 end up being called. Accounts of an additional must prepare yourself in accordance with Taxes Act as well as Companies Undertaking. 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 any Company can go up without affecting the operational or legal standing within the company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since it allows great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company will be a Private Company utilizing difference being that quantity of shareholders of a typical Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either indexed by a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely throughout the stock exchange. 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 Chief executive officer. As in the case in a Private Company, a Public Limited Clients are also a separate legal person, its existence is not affected the particular death, retirement or insolvency of its stakeholders.