The different Types of Business Entities in India
Doing business in India requires one to pick a type of business entity. In India one can choose from five different types of legal entities to conduct agency. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice of the business entity is reliant on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at all of these businesses 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 with various 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 thus. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to person another. However, assets of the firm may be sold from one person to another. 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 prone to maximum of 20 partners. A partnership deed is prepared that details amazed capital each partner will contribute to 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 as per The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However web pages 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 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 brought about by act of negligence of one partner is liable for payment from every partner of the partnership firm.
A partnership firm may or may 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 an issue ROF, it most likely is not treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of law.
Limited Liability Partnership
Limited Liability Partnership (LLP Registration Online in India) firm is often 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 policy cover. The maximum liability of each partner inside LLP is limited to the extent of his/her investment in 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. A person 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 in order to a C-Corporation in the particular. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, the owners (members) become shareholders in the company. A personal Limited Clients are a separate legal entity both treated by simply taxation as well as liability. The individual liability within the shareholders is fixed to their share funding. A private limited company could 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) 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 to the day-to-day activities for this company, Directors are appointed by the Shareholders. A private Company has more compliance burden if compared to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and some form of annual general meeting of Shareholders and Directors should be called. Accounts of business must be ready in accordance with Tax Act as well as Companies Performance. 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 this Company can go up without affecting the operational or legal standing of the company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since permits great degree of separation between ownership and processes.
Public Limited Company
Public Limited Company is compared to a Private Company however difference being that quantity of shareholders connected with Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either placed in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely close to stock return. Such a company requires more public disclosures and compliance from the government including appointment of independent directors within the board, public disclosure of books of accounts, cap of salaries of Directors and Chief executive officer. As in the case of a 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 one its stakeholders.
