The various Types of Business Entities in India

Doing business in India requires one to choose 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 Company and Public Limited Company. The choice in the business entity is obsessed with 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 does not 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, generally if 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 individual another. However, assets of those firm may be sold from one person a brand new. Proprietors of sole proprietorship firms have unlimited business liability. This mean 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 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 reported by The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However web-sites such assets will be partners of the firm. A partnership may/may not be dissolved in case of death in regards to a 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 linked 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 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 making use of ROF, it are not treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is a new type 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 protection. The maximum liability of each partner inside LLP has limitations to the extent of his/her purchase of the set. 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 Online LLP Registration Process in India. A private 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 similar to a C-Corporation in the. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, pet owners (members) become shareholders belonging to the company. A personal Limited Company is a separate legal entity both when considering taxation as well as liability. The personal liability of this shareholders is bound to their share monetary. A private limited company can be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are able and signed by the promoters (initial shareholders) of the company. Usually are all products then submitted 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 of the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden when compared to 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 business must prepare yourself in accordance with Tax Act and also Companies Conduct themselves. 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 associated with Company can go up without affecting the operational or legal standing for the company. Generally Venture Capital investors in order to invest in businesses in which Private Companies since permits great degree of separation between ownership and processes.

Public Limited Company

Public Limited Company is a Private Company however difference being that number of shareholders of the Public Limited Company could be unlimited using a minimum seven members. A Public Company can be either mentioned in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely through the stock alternate. 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 Boss. As in the case in a Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected the actual death, retirement or insolvency of any one its shareholders.