The different Types of Business Entities in India

Doing business in India requires one to pick 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 of the business entity is obsessed with various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at best man entities in detail

Sole Proprietorship

This is the most easy business entity to determine in India. It doesn’t involve 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 service tax is applicable, then registration with the service tax department is applicable. Same is true for other indirect taxes like VAT, Excise and. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to person another. However, assets of the firm may be sold from one person to another. Proprietors of sole proprietorship firms have unlimited business liability. This signifies that 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 subject to maximum of 20 partners. A partnership deed is prepared that details the total amount of capital each partner will contribute towards 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 its name. However web pages such assets include the 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 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 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 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 your ROF, it aren’t treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be 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 protection. The maximum liability of each partner in an LLP has limitations to the extent of his/her investment in 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 might be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much a C-Corporation in the. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, pet owners (members) become shareholders in the company. An exclusive Limited Clients are a separate legal entity both when considering taxation and also liability. The individual liability within the shareholders is proscribed to their share cash. A private limited company could be formed by registering company 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. All of these then sent to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To maintain 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 should be called. Accounts of this company must be prepared in accordance with Income 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 the positive side, Shareholders of this type of Company can change 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 greater level separation between ownership and processes.

Public Limited Liability Partnerhsip Registration in India Online Company

Public Limited Company is compared to a Private Company however difference being that regarding shareholders of the Public Limited Company could be unlimited with a minimum seven members. A Public Company can be either listed in a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely on the stock alternate. 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 Head honcho. 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 any one its stakeholders.