The different Types of Business Entities in India

Doing business in India requires one to select a type of business thing. 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 of the business entity is an issue of 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 numerous government departments are required only on a need basis. For example, generally if the business provides services and service tax is applicable, then registration with the service tax department is applicable. Same is true for other indirect taxes like VAT, Excise many others. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to person another. However, assets of which firm may be sold from one person a brand new. Proprietors of sole proprietorship firms have unlimited 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 the quantity of capital each partner will contribute to 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 reported by The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However web-sites such assets are 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 separate Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be belonging to 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 along with ROF, it may not be treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is really a new regarding business entity established by an Act of the Parliament. LLP Formation Online in India allows members to retain flexibility of ownership (similar to Partnership Firm) but provides a liability immunity. The maximum liability of each partner within an 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 LLP. A private or Public Limited Company as well as Partnership Firms are allowed to be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is in order to a C-Corporation in the particular. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, pet owners (members) become shareholders belonging to the company. A personal Limited Clients are a separate legal entity both treated by simply taxation and also liability. The personal liability from the shareholders is bound to their share finances. A private limited company could be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are prepared and signed by the promoters (initial shareholders) on the company. Usually are all products then published 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 of the company, Directors are appointed by the Shareholders. A private Company has more compliance burden assigned 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 must be called. Accounts of enterprise must prepare yourself in accordance with Tax Act and also Companies Undertaking. 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 such a Company can go up without affecting the operational or legal standing for the company. Generally Venture Capital investors prefer to invest in businesses are usually Private Companies since it allows great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company is compared to a Private Company with no difference being that associated with shareholders of a typical Public Limited Company could be unlimited with a minimum seven members. A Public Company can be either submitted to a stock market or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely on the stock return. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors throughout 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 an unbiased legal person, its existence is not affected the actual death, retirement or insolvency of each of its investors.