The various Types of Business Entities in India

Doing business in India requires one to choose a type of business body. 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 dependent 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 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, if ever 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 thus. 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 1. Proprietors of sole proprietorship firms infinite business liability. This means 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 subject 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 in accordance with The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However web pages such assets include 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 an outside 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 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 are not treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be a new regarding 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 protection. The maximum liability of each partner in an LLP is proscribed to the extent of his/her investment in the tone. 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. Somebody or Public Limited Company as well as Partnership Firms can 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 Liability Partnerhsip Registration in India Online Company allows its owners to join to company shares. On subscribing to shares, pet owners (members) become shareholders on the company. A private Limited Company is a separate legal entity both in terms of taxation as well as liability. The personal liability of this shareholders is proscribed to their share finances. A private limited company can be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association have decided and signed by the promoters (initial shareholders) with the company. Usually are all products then listed in the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To tend 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 LLP. For example, the Board of Directors must meet every quarter and a minumum of one annual general meeting of Shareholders and Directors should be called. Accounts of an additional must be ready in accordance with Taxes Act and also Companies Conduct themselves. 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 the positive side, Shareholders of this Company can change without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses which can be Private Companies since it allows great identify separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company however difference being that quantity of shareholders of the Public Limited Company can be unlimited along with 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 organization to trade its shares freely more than a stock convert. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Chief executive officer. As in the case associated with an Private Company, a Public Limited Company is also an impartial legal person, its existence is not affected the particular death, retirement or insolvency of some of its investors.