Doing business in India requires one to pick a type of business company. 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 of the business entity is right down to various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at best man entities in detail

Sole Proprietorship

This is the most easy business entity to determine in India. It won’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 some other 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 imperative. 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 individual another. However, assets of which firm may be sold from one person to another. 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 amazed capital each partner will contribute towards partnership. It also details how much profit/loss each partner will share. Working partners of the partnership are also allowed to draw a salary based upon The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However web pages 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 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 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 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 making use of ROF, it most likely is not treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of guidelines.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be a new involving 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 within LLP is bound to the extent of his/her investment in the organisation. An Online LLP Registration Procedure India 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 similar to a C-Corporation in the particular. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, pet owners (members) become shareholders of this company. A private Limited Company is a separate legal entity both must 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 Actual Association are able and signed by the promoters (initial shareholders) on the company. Fundamental essentials then listed in the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To care for the day-to-day activities in the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden if compared to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and looking after annual general meeting of Shareholders and Directors should be called. Accounts of enterprise must prepare yourself in accordance with Taxes 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 good side, Shareholders of such a Company can change without affecting the operational or legal standing of 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 related to a Private Company however difference being that regarding shareholders of a Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either placed in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely more than a stock swapping. Such a company requires more public disclosures and compliance from the government including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Head honcho. As in the case in a Private Company, a Public Limited Company is also motivated legal person, its existence is not affected the actual death, retirement or insolvency of any of its stakeholders.

The different Types of Business Entities in India

You May Also Like