The different Types of Business Entities in India

Doing business in India requires one to pick a type of business thing. In India one can choose from five different types of legal entities to conduct web business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice from the business entity is obsessed with 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 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 numerous 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 applicable. Same is true for other indirect taxes like VAT, Excise etc. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to individual another. However, assets of such firm may be sold from one person to another. 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 susceptible 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 in accordance with The Indian Partnership Act. A partnership is also allowed to purchase assets in its name. However web-sites such assets become the partners of the firm. A partnership may/may not be dissolved in case of death of 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 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 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 making use of ROF, it are not 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 law.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is 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 immunity. 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 LLP. Somebody or Public Limited Company as well as Partnership Firms are permitted to be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is significantly like a C-Corporation in the united states. Private Limited Company allows its owners to join to company shares. On subscribing to shares, the owners (members) become shareholders of this company. Somebody Limited Clients are a separate legal entity both in terms of taxation and also liability. Individual liability from the shareholders is proscribed to their share capital. A private limited company could be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association have decided and signed by the promoters (initial shareholders) within the company. Of those ingredients then submitted to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To care for the day-to-day activities in the company, Directors are appointed by the Shareholders. Someone Company has more compliance burden when comparing a Partnership and Online LLP Registration Process in India. For example, the Board of Directors must meet every quarter and you ought to annual general meeting of Shareholders and Directors must be called. Accounts of business must prepare yourself in accordance with Income tax Act and also Companies Federal 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 is capable of turning without affecting the operational or legal standing within the company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since it allows great amount separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company without the pain . difference being that regarding shareholders of a typical Public Limited Company could be unlimited having 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 vehicle to trade its shares freely close to stock return. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors on the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case associated with an Private Company, a Public Limited Company is also motivated legal person, its existence is not affected the actual death, retirement or insolvency of its stakeholders.

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