The different Types of Business Entities in India

Doing business in India requires one to choose a type of business thing. 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 belonging to the business entity is obsessed with 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 involve 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, in case the business provides services and service tax is applicable, then registration with the service tax department is imperative. 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 those firm may be sold from one person 1. 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details you may capital each partner will contribute on 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 attached with meet business liability claims of the partnership firm. Also losses incurred as being a result 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 an issue ROF, it most likely is not treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of legislated rules.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be 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 program. The maximum liability of each partner in an LLP is restricted to the extent of his/her purchase of the set. 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. Someone 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, pet owners (members) become shareholders on the company. An exclusive Limited Clients are a separate legal entity both the actual strategy taxation as well as liability. The private liability of this shareholders is restricted to their share finances. A private limited company could be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are positioned and signed by the promoters (initial shareholders) within the company. These are then published to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To maintain the day-to-day activities with the company, Directors are appointed by the Shareholders. A private Company has more compliance burden if compared to the a Partnership and Online LLP Registration in India. 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 the company must prepare in accordance with Tax Act as well as Companies Undertaking. 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 associated with Company will vary without affecting the operational or legal standing for this company. Generally Venture Capital investors in order to invest in businesses which can be Private Companies since permits great identify separation between ownership and operations.

Public Limited Company

Public Limited Company is related to a Private Company however difference being that associated with shareholders of a Public Limited Company can be unlimited with a minimum seven members. A Public Company can be either mentioned in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely throughout the stock return. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors on the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case associated with a Private Company, a Public Limited Company is also an independent legal person, its existence is not affected coming from the death, retirement or insolvency of its stakeholders.