The different 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 on the business entity is dependent on 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 determine 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 some other 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 compelled. 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 which 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 subjected to maximum of 20 partners. A partnership deed is prepared that details the total amount of capital each partner will contribute into 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 allowed to purchase assets in the name. However web-sites such assets are the partners of the firm. A partnership may/may not be dissolved in case of death of 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 connected to meet business liability claims of the partnership firm. Also losses incurred brought about by act of negligence of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or may 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 your ROF, it aren’t 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 law.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is a new involving 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 cover. The maximum liability of each partner in an LLP is bound to the extent of his/her purchase of the rigid. An Online LLP Registration Procedure India 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 might 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 to sign up to company shares. On subscribing to shares, the owners (members) become shareholders of the company. A personal Limited Clients are a separate legal entity both in terms of taxation and also liability. The individual liability from the shareholders is limited to their share cash. 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 prepared and signed by the promoters (initial shareholders) with the company. Fundamental essentials then listed in the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To tend the day-to-day activities of the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden when compared to a Partnership and LLP. For example, the Board of Directors must meet every quarter and looking after annual general meeting of Shareholders and Directors should be called. Accounts of business must get ready in accordance with Income tax Act and also 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 the positive side, Shareholders of any Company can change without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses which can be Private Companies since permits great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company with the difference being that associated with shareholders of a typical Public Limited Company can be unlimited along with a minimum seven members. A Public Company can be either placed in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely more than a stock alternate. Such a company requires more public disclosures and compliance from the government including appointment of independent directors within 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 Company is also an unbiased legal person, its existence is not affected from your death, retirement or insolvency of any of its shareholders.