Doing business in India requires one to choose a type of business company. 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 in the business entity is dependent 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
Sole Proprietorship
This is the most easy business entity set up 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 several government departments are required only on a need basis. For example, in case the business provides services and service tax is applicable, then registration with the service tax department is compelled. Same is true for other indirect taxes like VAT, Excise thus. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of those firm may be sold from one person various. Proprietors of sole proprietorship firms have unlimited business liability. This means 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 be subject to maximum of 20 partners. A partnership deed is prepared that details the total amount of 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 businesses The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However the one who owns such assets are 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 unique 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 with 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 your 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 law.
Limited Liability Partnership
Limited Liability Partnership (Online LLP Registration Process in India) 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 program. The maximum liability of each partner within LLP is proscribed to the extent of his/her purchase of 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. A private 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 similar to a C-Corporation in u . s. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, the owners (members) become shareholders of this company. A non-public Limited Company is a separate legal entity both when considering taxation and also liability. Individual liability of this shareholders is limited 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 Item of Association are positioned and signed by the promoters (initial shareholders) for this company. Usually are all products then listed in the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To care for the day-to-day activities within the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden if compared 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 the company must prepare in accordance with Income tax Act as well as Companies Act. 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 such a Company are able to turn without affecting the operational or legal standing of the company. Generally Venture Capital investors in order to invest in businesses which can be 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 with no difference being that quantity of shareholders of a Public Limited Company could be unlimited using a minimum seven members. A Public Company can be either placed in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely throughout the stock exchange. Such a company requires more public disclosures and compliance from the government including appointment of independent directors throughout the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case in a Private Company, a Public Limited Company is also motivated legal person, its existence is not affected from your death, retirement or insolvency of any of its investors.