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 web business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Liability Partnerhsip Registration Online India Company and Public Limited Company. The choice of the business entity is an issue of 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 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, when the business provides services and service tax is applicable, then registration with the service tax department is required. 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 this firm may be sold from one person diverse. Proprietors of sole proprietorship firms infinite business liability. This radically, and 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 you may 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 in accordance with The Indian Partnership Act. A partnership is also permitted to purchase assets in its name. However the one who owns such assets include the partners of the firm. A partnership may/may not be dissolved in case of death of any partner. The partnership doesn’t really have its own legal standing although applied for to insure 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 due to 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 may not be treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of legislated rules.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be a new regarding 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 immunity. The maximum liability of each partner inside LLP is proscribed to the extent of his/her investment in the firm. 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 Company as well as Partnership Firms might be converted into 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 a subscription to company shares. On subscribing to shares, the owners (members) become shareholders in the company. Somebody Limited Company is a separate legal entity both in terms of taxation and also liability. The private liability among the shareholders is limited to their share finances. A private limited company could be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are prepared and signed by the promoters (initial shareholders) for this company. All of these then sent to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To care for the day-to-day activities for this company, Directors are appointed by the Shareholders. Someone Company has more compliance burden assigned a Partnership and LLP. For example, the Board of Directors must meet every quarter and you ought to annual general meeting of Shareholders and Directors should be called. Accounts of enterprise must get ready in accordance with Income tax Act as well as Companies Federal act. 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 good side, Shareholders of this type of Company is capable of turning without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses have got Private Companies since it allows great identify separation between ownership and operations.

Public Limited Company

Public Limited Company is compared to a Private Company however difference being that associated with shareholders connected with Public Limited Company can be unlimited by using a minimum seven members. A Public Company can be either placed in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely more than a stock swapping. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors in 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 motivated legal person, its existence is not affected the actual death, retirement or insolvency of each of its investors.