The various Types of Business Entities in India

Doing business in India requires one to choose 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 belonging to the business entity is reliant on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at best man entities in detail

Sole Proprietorship

This is the most easy business entity set up in India. It doesn’t need 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, in case 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 such 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 quantity of 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 based upon The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However the owner of 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 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 attached 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 your ROF, it may not be treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of guidelines.

Limited Liability Partnership

Limited Liability Partnership (Online LLP Registration in India) 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 immunity. The maximum liability of each partner within an LLP is proscribed to the extent of his/her investment in the firm. 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. A person or Public Limited Company as well as Partnership Firms are permitted to be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much a C-Corporation in north america. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, pet 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. Individual liability of the shareholders is fixed to their share cash. A private limited company can be formed by registering the company 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. All of these then sent to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To tend the day-to-day activities in the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden if compared to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and you ought to annual general meeting of Shareholders and Directors end up being called. Accounts of enterprise must prepare in accordance with 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 associated with Company can change without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses in which Private Companies since permits great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company will be a Private Company without the pain . difference being that quantity of shareholders connected with Public Limited Company can be unlimited along with a minimum seven members. A Public Company can be either submitted to a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely on the stock swapping. 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 Boss. As in the case associated with Private Company, a Public Limited Clients are also an unbiased legal person, its existence is not affected from your death, retirement or insolvency of any of its stakeholders.