Doing business in India requires one to select a type of business entity. In India one can choose from five different types of legal entities to conduct agency. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice of the business entity is reliant on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at all of these businesses entities in detail
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 with some other government departments are required only on a need basis. For example, if 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 many others. 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 diverse. Proprietors of sole proprietorship firms infinite business liability. This signifies 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 subject 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 internet websites such assets include 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 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 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 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 with the ROF, it aren’t 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 guidelines.
Limited Liability Partnership
Limited Liability Partnership (LLP Registration Online in India) firm is really a new involving 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 a great LLP is bound to the extent of his/her purchase of the rigid. 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 can be converted into 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 subscribe to company shares. On subscribing to shares, pet owners (members) become shareholders in the company. A private Limited Company is a separate legal entity both when considering taxation and also liability. The personal liability from the shareholders is restricted to their share monetary. A private limited company can be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are positioned and signed by the promoters (initial shareholders) with the company. Fundamental essentials then listed in the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To tend to the day-to-day activities within the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden when comparing 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 get ready in accordance with Tax Act and also Companies Performance. Also Companies are taxed twice if earnings 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 good side, Shareholders of this type of 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 a higher separation between ownership and operations.
Public Limited Company
Public Limited Company is similar to a Private Company without the pain . difference being that connected with shareholders of the Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either mentioned in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely throughout the stock return. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors within 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 any one its investors.