The various Types of Business Entities in India

Doing business in India requires one to select a type of business thing. 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 right down to 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 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 repair tax is applicable, then registration with the service tax department is compelled. 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 person another. However, assets of those firm may be sold from one person diverse. Proprietors of sole proprietorship firms infinite 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 subjected to maximum of 20 partners. A partnership deed is prepared that details amazed 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 reported by The Indian Partnership Act. A partnership is also permitted to purchase assets in its name. However the one who owns such assets will be 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 attached with 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 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 along with ROF, it may not be 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 legislated rules.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often a new associated with 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 a great LLP is bound to the extent of his/her purchase of the set. An LLP has its own Permanent Account Number (PAN) and legal status. Online LLP Formation in India 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 are permitted to be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is significantly like a C-Corporation in north america. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, the owners (members) become shareholders belonging to the company. A personal Limited Company is a separate legal entity both the actual strategy taxation and also liability. The private liability within the shareholders is bound to their share monetary. A private limited company could be formed by registering business name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are able and signed by the promoters (initial shareholders) within the company. Usually are all products then submitted to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To look after the day-to-day activities in the company, Directors are appointed by the Shareholders. A private Company has more compliance burden assigned 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 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 are able to turn 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 a higher 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 a real Public Limited Company can be unlimited having 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 business 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 throughout the board, public disclosure of books of accounts, cap of salaries of Directors and Head honcho. As in the case associated with an Private Company, a Public Limited Clients are also an unbiased legal person, its existence is not affected by the death, retirement or insolvency of some of its stakeholders.