The various 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 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 reliant on 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 establish 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 with various 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 many others. It is not possible to transfer the ownership of a Sole Proprietorship from one person to another. However, assets of which firm may be sold from one person to another. 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 amount of 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 as per The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However internet websites such assets include the 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 other 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 might not be 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 does not prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of statute.

Limited Liability Partnership

Limited Liability Partnerhsip Registration in India Online Liability Partnership (LLP) firm is really 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 immunity. The maximum liability of each partner in an LLP is restricted to the extent of his/her purchase of the organisation. 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 may be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much a C-Corporation in the. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, owners (members) become shareholders of this company. A private Limited Clients are a separate legal entity both treated by simply taxation and also liability. Private liability of this shareholders is fixed to their share monetary. 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 positioned and signed by the promoters (initial shareholders) within the company. All of these then listed in the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To tend the day-to-day activities with the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden n comparison to the 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 must be called. Accounts of the company must get ready in accordance with Income tax Act and also Companies Act. 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 this Company are able to turn without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses in which Private Companies since it allows great a higher separation between ownership and operations.

Public Limited Company

Public Limited Company is a Private Company with no difference being that regarding shareholders of a typical Public Limited Company can be unlimited with a minimum seven members. A Public Company can be either listed in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely more than a stock alternate. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case of a Private Company, a Public Limited Clients are also motivated legal person, its existence is not affected coming from the death, retirement or insolvency of some of its stakeholders.

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