The different Types of Business Entities in India
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 belonging to 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 doesn’t need 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, if ever the business provides services and service tax is applicable, then registration with the service tax department is compelled. 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 person to another. However, assets of such firm may be sold from one person diverse. Proprietors of sole proprietorship firms infinite business liability. This means 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 subjected to maximum of 20 partners. A partnership deed is prepared that details amazed 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 as per The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However the one who owns such assets are the 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 unique Permanent Account Number (PAN) is used on 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 brought about by 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 with the ROF, it is probably not treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of policies.
Limited Liability Partnership
Limited Liability Partnership (Online LLP Registration Procedure India) firm is really 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 a great LLP is bound to the extent of his/her investment in 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 LLP. A personal or Public Limited Company as well as Partnership Firms are permitted to be converted into a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is similar to a C-Corporation in north america. Private Limited Company allows its owners to join to company shares. On subscribing to shares, the owners (members) become shareholders on the company. A personal Limited Clients are a separate legal entity both in terms of taxation and also liability. Private liability of this shareholders is restricted to their share finances. A private limited company could be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association have decided and signed by the promoters (initial shareholders) on the company. Usually are all products then published to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To care for the day-to-day activities of 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 an additional must prepare yourself in accordance with Taxes Act and also Companies Undertaking. 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 can go up without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses in which Private Companies since it allows great degree of separation between ownership and processes.
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 having a minimum seven members. A Public Company can be either placed in a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely through the stock exchange. 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 Head honcho. As in the case associated with an Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected coming from the death, retirement or insolvency of its stakeholders.
