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Nov 16

The different Types of Business Entities in India

Doing business in India requires one to select a type of business thing. 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 from the business entity is right down to various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at each of these entities in detail

Sole Proprietorship

This is the most easy business entity to establish in India. It won’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 numerous government departments are required only on a need basis. For example, generally if 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 and. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to person another. However, assets of such firm may be sold from one person various. Proprietors of sole proprietorship firms infinite 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 the total amount of 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 permitted to purchase assets in the name. However internet websites such assets always be 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 separate 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 with act of negligence of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or might 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 with the ROF, it most likely is not treated as legal document. However, this does not prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of guidelines.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often 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 program. The maximum liability of each partner within LLP is limited to the extent of his/her investment in the tone. An LLP has its own Permanent Account Number (PAN) and legal status. Online LLP Registration Process 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 are allowed to be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is in order to a C-Corporation in the united states. Private Limited Company allows its owners to join to company shares. On subscribing to shares, the owners (members) become shareholders on the company. Somebody Limited Clients are a separate legal entity both when considering taxation as well as liability. The private liability of the shareholders is proscribed to their share capital. A private limited company could be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association have decided and signed by the promoters (initial shareholders) within the company. Usually are all products then submitted to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To tend to the day-to-day activities within the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden assigned 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 end up being called. Accounts of an additional must be ready in accordance with Income tax Act and also Companies Undertaking. Also Companies are taxed twice if earnings 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 any Company are able to turn without affecting the operational or legal standing within the company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since permits great a higher separation between ownership and operations.

Public Limited Company

Public Limited Company will be a Private Company utilizing difference being that regarding shareholders of a Public Limited Company can be unlimited by using 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 close to stock convert. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case in a Private Company, a Public Limited Company is also a separate legal person, its existence is not affected the actual death, retirement or insolvency of its shareholders.