The various Types of Business Entities in India

Doing business in India requires one to pick a type of business entity. 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 of the business entity is obsessed with 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 does not 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 various 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 compelled. Same is true for other indirect taxes like VAT, Excise thus. It is not possible to transfer the ownership of a Sole Proprietorship from one person to another. However, assets of those 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 prone 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 businesses The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However the owner of such assets include the partners of the firm. A partnership may/may not be dissolved in case of death in regards to 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 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 is probably 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 statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is really a new involving 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 protection. The maximum liability of each partner within 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 are permitted to be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is similar to a C-Corporation in the particular. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, pet owners (members) become shareholders on the company. An exclusive Limited Clients are a separate legal entity both must taxation as well as liability. The individual liability of this shareholders is restricted to their share monetary. A private limited company can be formed by registering business name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are able and signed by the promoters (initial shareholders) of the company. These are 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 with the company, Directors are appointed by the Shareholders. An exclusive 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 must be called. Accounts of an additional must prepare in accordance with Tax Act as well as Companies Federal act. 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 good side, Shareholders of associated with 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 permits great a higher separation between ownership and operations.

Public Limited Company

Public Limited Company is related to a Private Company utilizing difference being that regarding shareholders of a typical Public Limited Company can be unlimited with 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 organization to trade its shares freely more than a 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 of a Private Company, a Public Limited Clients are also an impartial legal person, its existence is not affected the actual death, retirement or insolvency of any one its investors.