The different Types of Business Entities in India

Doing business in India requires one to pick a type of business body. 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 Liability Partnerhsip Registration in India Online Company. The choice on the business entity is reliant 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 to establish 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 different government departments are required only on a need basis. For example, if the business provides services and repair tax is applicable, then registration with the service tax department is required. Same is true for other indirect taxes like VAT, Excise and. It is not possible to transfer the ownership of a Sole Proprietorship from one person to another. However, assets of those firm may be sold from one person diverse. 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 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 in accordance with The Indian Partnership Act. A partnership is also allowed to purchase assets in its name. However the one who owns such assets always be partners of the firm. A partnership may/may not be dissolved in case of death of partner. The partnership doesn’t really have its own legal standing although other Permanent Account Number (PAN) is used on 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 with 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 may not be treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be 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 cover. The maximum liability of each partner within LLP is bound to the extent of his/her purchase of 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. A personal 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 much like a C-Corporation in u . s. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, owners (members) become shareholders of the company. A personal Limited Clients are a separate legal entity both the actual strategy taxation and also liability. Individual liability within the shareholders is fixed to their share finances. A private limited company could be formed by registering business name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are prepared and signed by the promoters (initial shareholders) within the company. These are then published to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To maintain the day-to-day activities for this company, Directors are appointed by the Shareholders. Someone Company has more compliance burden when comparing 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 must be called. Accounts of an additional must get ready in accordance with Taxes Act as well as Companies Conduct themselves. 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 this Company is capable of turning without affecting the operational or legal standing for the company. Generally Venture Capital investors in order to invest in businesses which can be Private Companies since permits great a higher separation between ownership and operations.

Public Limited Company

Public Limited Company will be a Private Company with the difference being that associated with shareholders of a Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either indexed by a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely more than a stock return. 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 Boss. As in the case associated with an Private Company, a Public Limited Clients are also an unbiased legal person, its existence is not affected coming from the death, retirement or insolvency of each of its stakeholders.