The various Types of Business Entities in India

Doing business in India requires one to select a type of business organization. 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 of the business entity is obsessed with 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 to determine 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 different government departments are required only on a need basis. For example, when 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 person to another. However, assets of such firm may be sold from one person to another. 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 be subject to maximum of 20 partners. A partnership deed is prepared that details the total amount of capital each partner will contribute towards partnership. It also details how much profit/loss each partner will share. Working partners of the partnership are also allowed to draw a salary businesses The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However internet websites such assets are the partners of the firm. A partnership may/may not be dissolved in case of death of this partner. The partnership doesn’t really have its own legal standing although other Permanent Account Number (PAN) is allotted to the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be linked 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 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 making use of 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 within a court of guidelines.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is 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 program. The maximum liability of each partner within LLP is bound to the extent of his/her purchase of 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. Someone or Public Limited Liability Partnerhsip Registration in India Online 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 like a C-Corporation in north america. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, the owners (members) become shareholders of the company. A personal Limited Company is a separate legal entity both must taxation and also liability. The personal liability of the shareholders is limited to their share capital. A private limited company can be formed by registering business name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are set and signed by the promoters (initial shareholders) for this company. All of these then listed in the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To tend the day-to-day activities of the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden assigned a Partnership and LLP. For example, the Board of Directors must meet every quarter and at least one annual general meeting of Shareholders and Directors end up being called. Accounts of enterprise must prepare yourself in accordance with Income tax Act as well as Companies Undertaking. 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 such a Company is capable of turning without affecting the operational or legal standing within the company. Generally Venture Capital investors prefer to invest in businesses are usually Private Companies since permits great degree of separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company with no difference being that associated with shareholders connected with Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either mentioned in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely through the stock return. 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 associated with Private Company, a Public Limited Company is also a separate legal person, its existence is not affected the actual death, retirement or insolvency of any of its stakeholders.