The different Types of Business Entities in India

Doing business in India requires one to pick a type of business organization. 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 of the business entity is an issue of 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 numerous government departments are required only on a need basis. For example, if ever the business provides services and repair tax is applicable, then registration with the service tax department is forced. Same is true for other indirect taxes like VAT, Excise or anything else. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to individual another. However, assets of those firm may be sold from one person diverse. Proprietors of sole proprietorship firms have unlimited business liability. This signifies 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details the total amount of capital each partner will contribute into 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 allowed 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 in regards to a partner. The partnership doesn’t really have its own legal standing although applied for to insure 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 due to 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 your ROF, it is probably not treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is really 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 program. The maximum liability of each partner in an LLP is bound to the extent of his/her investment in the tone. 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. Someone or Public Limited Company as well as Partnership Firms might 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 in the company. A personal Limited Company is a separate legal entity both when considering taxation as well as liability. The private liability of this shareholders is fixed to their share monetary. A private limited company can be formed by registering the company 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) with the company. These are then sent to 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 when comparing 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 must be called. Accounts of enterprise must get ready in accordance with Tax Act as well as 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 the positive side, Shareholders of such a Company are able to turn without affecting the operational or legal standing for the company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since it allows great identify separation between ownership and operations.

Public Limited Company

Public Limited Company is related to a Private Company utilizing difference being that associated with shareholders connected with Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either mentioned in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely through the stock convert. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors on the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case associated with an Private Company, a Public Limited Clients are also an independent legal person, its existence is not affected coming from the death, retirement or insolvency of some of its shareholders.

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