The various Types of Business Entities in India

Doing business in India requires one to pick a type of business company. 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 right down to various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at these things entities in detail

Sole Proprietorship

This is the most easy business entity to establish 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, in case 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 or anything else. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of those firm may be sold from one person various. Proprietors of sole proprietorship firms infinite business liability. This radically, and 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details amazed 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 in accordance with The Indian Partnership Act. A partnership is also permitted to purchase assets in its name. However the one who owns such assets become the partners of the firm. A partnership may/may not be dissolved in case of death in regards to a 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 attached to meet business liability claims of the partnership firm. Also losses incurred as being a result 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 making use of ROF, it may not be treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of law.

Limited Liability Partnership

Limited Liability Partnership (Online LLP Registration Procedure India) firm is often a new associated with 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 policy cover. The maximum liability of each partner inside LLP is limited to the extent of his/her purchase of the set. 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. A private or Public Limited Company as well as Partnership Firms can be converted to 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 a subscription to company shares. On subscribing to shares, the owners (members) become shareholders belonging to the company. An exclusive Limited Company is a separate legal entity both in terms of taxation and also liability. Private liability of this shareholders is limited to their share finances. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are set and signed by the promoters (initial shareholders) for this company. These are then sent to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To look after the day-to-day activities within the company, Directors are appointed by the Shareholders. A personal 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 end up being called. Accounts of this company must be prepared in accordance with Taxes Act as well as 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 good side, Shareholders of such a Company will vary without affecting the operational or legal standing of the company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since it allows great a higher separation between ownership and processes.

Public Limited Company

Public Limited Company is a Private Company with no difference being that associated with shareholders of a typical Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either submitted to a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely throughout the stock swapping. Such a company requires more public disclosures and compliance from brand new 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 a Private Company, a Public Limited Company is also an independent legal person, its existence is not affected coming from the death, retirement or insolvency of some of its stakeholders.