The different Types of Business Entities in India

Doing business in India requires one to pick a type of business body. 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 on 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 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 different 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 applicable. 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 individual another. However, assets of the firm may be sold from one person diverse. Proprietors of sole proprietorship firms have unlimited business liability. This means that 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 you may capital each partner will contribute towards 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 in accordance with The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However the owner of such assets always be 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 other Permanent Account Number (PAN) is allotted to 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 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 along with ROF, it is probably not treated as legal document. However, this does not prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is a new type 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 inside LLP is limited to the extent of his/her purchase of the set. An LLP Incorproation Online in 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 similar to a C-Corporation in north america. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, owners (members) become shareholders in the company. A personal Limited Company is a separate legal entity both must taxation as well as liability. The personal liability among the shareholders is restricted to their share capital. A private limited company could be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are positioned and signed by the promoters (initial shareholders) for this company. Of those ingredients then published 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 of 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 at least one annual general meeting of Shareholders and Directors must be called. Accounts of this company must be ready in accordance with Income tax Act and also Companies 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 this type of Company can change without affecting the operational or legal standing for the company. Generally Venture Capital investors prefer to invest in businesses are usually Private Companies since it allows great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company will be a Private Company with no difference being that quantity of shareholders of a typical Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either submitted to a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely close to stock swapping. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors within 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 Clients are also a separate legal person, its existence is not affected the particular death, retirement or insolvency of its stakeholders.