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 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 dependent on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at each of these entities in detail

Sole Proprietorship

This is the most easy business entity to establish 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, if ever the business provides services and service tax is applicable, then registration with the service tax department is forced. Same is true for other indirect taxes like VAT, Excise or anything else. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to individual another. However, assets of such firm may be sold from one person 1. Proprietors of sole proprietorship firms have unlimited business liability. This mean that 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 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 in accordance with The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However web-sites such assets include the partners of the firm. A partnership may/may not be dissolved in case of death of 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 attached with meet business liability claims of the partnership firm. Also losses incurred outcome 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 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 in the court of guidelines.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm can be 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 protection. The maximum liability of each partner inside Online LLP Registration in India is limited to the extent of his/her purchase of the tone. 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 might be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is in order to a C-Corporation in u . s. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, the owners (members) become shareholders belonging to the company. A non-public Limited Clients are a separate legal entity both treated by simply taxation as well as liability. The personal liability of the shareholders is fixed to their share finances. A private limited company could be formed by registering business name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are set and signed by the promoters (initial shareholders) on the company. Fundamental essentials then sent 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 for this company, Directors are appointed by the Shareholders. A personal 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 end up being called. Accounts of business must be prepared 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 associated with Company are able to turn without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses have got Private Companies since it allows great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company without the pain . difference being that associated with shareholders of a Public Limited Company could be unlimited with a minimum seven members. A Public Company can be either indexed by a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely on the stock convert. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors in the board, public disclosure of books of accounts, cap of salaries of Directors and Chief executive officer. As in the case associated with a Private Company, a Public Limited Company is also an impartial legal person, its existence is not affected from your death, retirement or insolvency of each of its stakeholders.