The different Types of Business Entities in India

Doing business in India requires one to pick a type of business company. 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 in the business entity is right down to 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 to establish 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 several government departments are required only on a need basis. For example, if ever 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 many others. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of this firm may be sold from one person a brand new. 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 be subject to maximum of 20 partners. A partnership deed is prepared that details amazed 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 permitted to purchase assets in the name. However internet websites such assets are 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 used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be linked with 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 may not be treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within 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 investment in the tone. 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. A personal or Public Limited Company as well as Partnership Firms are permitted to be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much a C-Corporation in the particular. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, the owners (members) become shareholders in the company. A non-public Limited Clients are a separate legal entity both in terms of taxation and also liability. The private liability of the shareholders is proscribed to their share finances. 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 are able and signed by the promoters (initial shareholders) for this company. Usually are all products then submitted to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To tend to the day-to-day activities with 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 at least one annual general meeting of Shareholders and Directors should be called. Accounts of this company must prepare yourself in accordance with Tax Act as well as Companies Performance. 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 type of Company are able to turn without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses which can be Private Companies since it allows great amount separation between ownership and processes.

Public Limited Company

Public Limited Company will be a Private Company with the difference being that number of shareholders of a typical Public Limited Company can be unlimited with a minimum seven members. A Public Company can be either listed in a stock market 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 federal government including appointment of independent directors throughout 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 Clients are also motivated legal person, its existence is not affected the actual death, retirement or insolvency of some of its stakeholders.