The various Types of Business Entities in India

Doing business in India requires one to select a type of business organization. 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 dependent on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at all of these businesses entities in detail

Sole Proprietorship

This is the most easy business entity set up in India. It doesn’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 with some other government departments are required only on a need basis. For example, generally if 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 person to another. However, assets of which firm may be sold from one person 1. Proprietors of sole proprietorship firms infinite business liability. This mean that 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 subject to maximum of 20 partners. A partnership deed is prepared that details amazed 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 based upon The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However web-sites 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 connected 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 is almost certainly 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 making use of ROF, it most likely is not treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of legislated rules.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is a new regarding 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 bound to the extent of his/her investment in the set. An LLP has its own Permanent Account Number (PAN) and legal status. Online LLP Formation in India 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 may be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much like a C-Corporation in the united states. Private Limited Company allows its owners to join to company shares. On subscribing to shares, owners (members) become shareholders of the company. Somebody Limited Company is a separate legal entity both must taxation as well as liability. The personal liability among the shareholders is restricted to their share funding. 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 able and signed by the promoters (initial shareholders) with the company. Usually are all products then published to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To care for the day-to-day activities in the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden when comparing 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 must be called. Accounts of the company must prepare in accordance with Taxes Act as well as Companies Conduct themselves. 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 the positive side, Shareholders of this Company can change without affecting the operational or legal standing within the company. Generally Venture Capital investors prefer to invest in businesses in which Private Companies since it allows great amount separation between ownership and operations.

Public Limited Company

Public Limited Company is a Private Company however difference being that number of shareholders of a real Public Limited Company can be unlimited with a minimum seven members. A Public Company can be either listed in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely through the stock return. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors in the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case associated with an Private Company, a Public Limited Company is also motivated legal person, its existence is not affected by the death, retirement or insolvency of any one its shareholders.