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 web 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 dependent on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at each of these entities in detail

Sole Proprietorship

This is the most easy business entity to establish 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 with some other 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 applicable. 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 which firm may be sold from one person to another. Proprietors of sole proprietorship firms have unlimited business liability. This radically, and 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 subjected to maximum of 20 partners. A partnership deed is prepared that details you may capital each partner will contribute on 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 reported by The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However internet websites such assets are the partners of the firm. A partnership may/may not be dissolved in case of death of any partner. The partnership doesn’t really have its own legal standing although a unique 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 to meet business liability claims of the partnership firm. Also losses incurred outcome 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 does not prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of statute.

Limited Liability Partnerhsip Registration Online India Liability Partnership

Limited Liability Partnership (LLP) firm is really a new involving 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 within an LLP is limited to the extent of his/her investment in the set. 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 into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much like a C-Corporation in u . s. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, owners (members) become shareholders on the company. A private Limited Clients are a separate legal entity both the actual strategy taxation and also liability. Private liability among the shareholders is bound to their share cash. A private limited company can be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are set and signed by the promoters (initial shareholders) within the company. These are then listed in the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To tend the day-to-day activities within the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden when compared to 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 end up being called. Accounts of an additional must be prepared in accordance with Income tax 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 good side, Shareholders of such a Company will vary without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses are usually Private Companies since permits great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company is related to a Private Company without the pain . difference being that number of shareholders connected with Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either indexed by a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely close to stock return. 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 Ceo. As in the case associated with 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 shareholders.