The various Types of Business Entities in India
Doing business in India requires one to choose a type of business thing. 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 dependent on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at organizations entities in detail
Sole Proprietorship
This is the most easy business entity set up 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 with some other 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 compelled. 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 in order to individual another. However, assets of this firm may be sold from one person to another. Proprietors of sole proprietorship firms have unlimited 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 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 in accordance with The Indian Partnership Act. A partnership is also permitted 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 a unique Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be connected to meet business liability claims of the partnership firm. Also losses incurred as being a result act of negligence of one partner is liable for payment from every partner of the partnership firm.
A partnership firm may or might 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 with the ROF, it aren’t treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of guidelines.
Limited 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 policy cover. The maximum liability of each partner inside LLP is proscribed to the extent of his/her investment in the rigid. 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 significantly like a C-Corporation in the united states. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, owners (members) become shareholders in the company. A personal Limited Clients are a separate legal entity both when considering taxation and also liability. The private liability of the shareholders is bound to their share monetary. A private limited company can be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are positioned and signed by the promoters (initial shareholders) with the company. Of those ingredients then submitted to 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. A personal Company has more compliance burden when comparing a Partnership and Online LLP Incorporation in India. For example, the Board of Directors must meet every quarter and some form of annual general meeting of Shareholders and Directors end up being called. Accounts of enterprise must be prepared in accordance with Income tax Act as well as Companies Federal act. Also Companies are taxed twice if income is 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 can change without affecting the operational or legal standing for the company. Generally Venture Capital investors prefer to invest in businesses are usually Private Companies since it allows great greater level separation between ownership and processes.
Public Limited Company
Public Limited Company is a Private Company with the difference being that regarding shareholders connected with Public Limited Company could be unlimited using a minimum seven members. A Public Company can be either submitted to a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely on the stock exchange. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors within 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 motivated legal person, its existence is not affected the particular death, retirement or insolvency of any one its investors.
