The different Types of Business Entities in India

Doing business in India requires one to choose a type of business entity. 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 obsessed with various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at all of these businesses 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, when the business provides services and service tax is applicable, then registration with the service tax department is applicable. Same is true for other indirect taxes like VAT, Excise and. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of such 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 subject to maximum of 20 partners. A partnership deed is prepared that details the quantity 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 based upon The Indian Partnership Act. A partnership is also permitted to purchase assets in the name. However internet websites such assets always be 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 a separate Permanent Account Number (PAN) is allotted to 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 as being a result act of negligence of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or may 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 your ROF, it aren’t treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is often a new regarding 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 program. The maximum liability of each partner inside LLP Registration Online in India is bound to the extent of his/her investment in 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. A person or Public Limited Company as well as Partnership Firms are allowed to be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is in order to a C-Corporation in the. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, owners (members) become shareholders of this company. A non-public Limited Clients are a separate legal entity both must taxation and also liability. Private liability from the shareholders is fixed to their share finances. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are set and signed by the promoters (initial shareholders) for this company. Fundamental essentials then published 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 with 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 a minumum of one annual general meeting of Shareholders and Directors must be called. Accounts of business must prepare in accordance with Tax Act as well as 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 the positive side, Shareholders of such a Company can go up without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses are usually Private Companies since it allows great identify separation between ownership and processes.

Public Limited Company

Public Limited Company will be a Private Company utilizing difference being that associated with shareholders of a typical Public Limited Company can be unlimited by using a minimum seven members. A Public Company can be either listed in a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely on the stock exchange. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors on the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case associated with an Private Company, a Public Limited Clients are also a separate legal person, its existence is not affected from your death, retirement or insolvency of each of its shareholders.

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