The different Types of Business Entities in India

Doing business in India requires one to select a type of business company. In India one can choose from five different types of legal entities to conduct agency. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice from the business entity is reliant on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at these things entities in detail

Sole Proprietorship

This is the most easy business entity set up 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 with various 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 applicable. Same is true for other indirect taxes like VAT, Excise etc. 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 a brand new. Proprietors of sole proprietorship firms infinite business liability. This radically, and 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 amount of capital each partner will contribute to 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 in order to purchase assets in the name. However web pages such assets become 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 other Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be belonging 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 may not be 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 doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of legislated rules.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is a new associated with 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 proscribed to the extent of his/her purchase of 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 might be converted to a Limited Liability Partnership.

Private Limited Liability Partnerhsip Registration in India Online Company

A Private Limited Company in India is in order to a C-Corporation in u . s. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, pet owners (members) become shareholders in the company. A non-public Limited Company is a separate legal entity both in terms of taxation as well as liability. The individual liability of this shareholders is limited 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 Actual Association are positioned and signed by the promoters (initial shareholders) with the company. Usually are all products then sent to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To care for the day-to-day activities for this company, Directors are appointed by the Shareholders. A private Company has more compliance burden assigned a Partnership and LLP. For example, the Board of Directors must meet every quarter and looking after annual general meeting of Shareholders and Directors should be called. Accounts of this company must be prepared in accordance with Income tax Act and also Companies Act. 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 this type of Company can change without affecting the operational or legal standing for the company. Generally Venture Capital investors in order to invest in businesses that are Private Companies since permits great a higher 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 of a real Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either mentioned in a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely through the stock swapping. Such a company requires more public disclosures and compliance from the government including appointment of independent directors in the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case in a Private Company, a Public Limited Clients are also motivated legal person, its existence is not affected from your death, retirement or insolvency of each of its investors.