Doing business in India requires one to pick a type of business body. In India one can choose from five different types of legal entities to conduct business enterprise. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice on the business entity is dependent on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at organizations entities in detail
This is the most easy business entity to establish 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, if ever the business provides services and service tax is applicable, then registration with the service tax department is imperative. 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 in order to person another. However, assets of this firm may be sold from one person diverse. Proprietors of sole proprietorship firms have unlimited business liability. This mean that owners’ personal assets can be attached to meet business liability claims.
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 the 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 in accordance with The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However web-sites such assets are 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 linked with meet business liability claims of the partnership firm. Also losses incurred with act of negligence of one partner is liable for payment from every partner of the partnership firm.
A partnership firm may or is almost certainly 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 along with ROF, it is probably not treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of legislated rules.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm can be a new form of business entity established by an Act of the Parliament. Online LLP Registration in India allows members to retain flexibility of ownership (similar to Partnership Firm) but provides a liability protection. The maximum liability of each partner in an LLP is restricted to the extent of his/her investment in the firm. 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. Somebody or Public Limited Company as well as Partnership Firms are allowed to be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is significantly like a C-Corporation in u . s. Private Limited Company allows its owners to join to company shares. On subscribing to shares, the owners (members) become shareholders of the company. A personal Limited Clients are a separate legal entity both treated by simply taxation as well as liability. Individual liability within the shareholders is limited to their share finances. 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 prepared and signed by the promoters (initial shareholders) of the company. Fundamental essentials then published to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To maintain the day-to-day activities in the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden n comparison to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and at least one annual general meeting of Shareholders and Directors end up being called. Accounts of an additional must prepare in accordance with Income tax Act as well as Companies Performance. Also Companies are taxed twice if profits are to be distributed to Shareholders. Closing a Private Limited Company in India is a tedious process and requires many formalities to be completed.
One the positive side, Shareholders of this type of Company can go up without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer 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 quantity of shareholders of a typical Public Limited Company can be unlimited by using a minimum seven members. A Public Company can be either submitted to a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely on the stock swapping. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Chief executive officer. As in the case associated with an Private Company, a Public Limited Company is also an impartial legal person, its existence is not affected coming from the death, retirement or insolvency of its stakeholders.