The various Types of Business Entities in India

Doing business in India requires one to select a type of business body. 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 an issue of 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 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, generally if the business provides services and service 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 in order to person another. However, assets of this 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 be 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 internet websites such assets will be partners of the firm. A partnership may/may not be dissolved in case of death of any partner. The partnership doesn’t really have its own legal standing although other 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 outcome act of negligence of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or might 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 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 law.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often a new type of business entity established by an Act of the Parliament. Online LLP Incorporation in India allows members to retain flexibility of ownership (similar to Partnership Firm) but provides a liability program. The maximum liability of each partner a great LLP is limited to the extent of his/her investment in 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 in order to a C-Corporation in the united states. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, owners (members) become shareholders in the company. A non-public Limited Clients are a separate legal entity both the actual strategy taxation and also liability. Private liability of the shareholders is limited to their share capital. A private limited company can be formed by registering an additional 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) of 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 look after the day-to-day activities for this company, Directors are appointed by the Shareholders. Someone Company has more compliance burden if compared 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 this company must get ready in accordance with Tax Act as well as Companies Act. Also Companies are taxed twice if earnings 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 good side, Shareholders of any Company will vary without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses in which Private Companies since permits great degree of separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company with no difference being that associated with shareholders connected with Public Limited Company can be unlimited having a minimum seven members. A Public Company can be either submitted to a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely on 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 Chief executive officer. As in the case associated with an Private Company, a Public Limited Company is also a separate legal person, its existence is not affected the actual death, retirement or insolvency of any of its investors.