The different Types of Business Entities in India

Doing business in India requires one to pick a type of business thing. 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 an issue of 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 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 numerous government departments are required only on a need basis. For example, generally if 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 etc. 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 various. Proprietors of sole proprietorship firms have unlimited 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details the total amount of capital each partner will contribute towards 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 businesses The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However web-sites such assets always be 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 separate 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 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 along with ROF, it are not 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 law.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be 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 cover. The maximum liability of each partner in an LLP is proscribed to the extent of his/her purchase of the organisation. An Online LLP Registration in 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 private 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 similar to a C-Corporation in the particular. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, pet owners (members) become shareholders of the company. A non-public Limited Clients are a separate legal entity both treated by simply taxation and also liability. Individual liability of this shareholders is proscribed to their share finances. A private limited company can 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) with the company. Of those ingredients then listed in the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To care for the day-to-day activities within the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden when compared to 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 this company must be ready in accordance with Tax 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 associated with Company will vary without affecting the operational or legal standing for the company. Generally Venture Capital investors prefer to invest in businesses are usually Private Companies since permits great a higher separation between ownership and processes.

Public Limited Company

Public Limited Company is related to a Private Company utilizing difference being that regarding shareholders of the Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either submitted to a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle 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 on the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case associated with Private Company, a Public Limited Clients are also a separate legal person, its existence is not affected coming from the death, retirement or insolvency of each of its stakeholders.