Doing business in India requires one to select a type of business company. 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 of the business entity is obsessed with various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at these things entities in detail
Sole Proprietorship
This is the most easy business entity to determine 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 different government departments are required only on a need basis. For example, if the business provides services and repair tax is applicable, then registration with the service tax department is compelled. 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 which firm may be sold from one person 1. Proprietors of sole proprietorship firms have unlimited business liability. This is the reason why 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details the quantity of capital each partner will contribute on 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 based upon The Indian Partnership Act. A partnership is also allowed to purchase assets in its name. However web-sites such assets will 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 an outside Permanent Account Number (PAN) is allotted to 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 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 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 making use of ROF, it are not treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of policies.
Limited Liability Partnership
Limited Liability Partnership (Online LLP Registration in India) firm is a new form 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 a great LLP is limited to the extent of his/her purchase of the organisation. 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 personal 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 the particular. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, the owners (members) become shareholders in the company. A non-public Limited Clients are a separate legal entity both when considering taxation as well as liability. The personal liability of this shareholders is restricted to their share capital. A private limited company can be formed by registering an additional 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. All of these then published to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To maintain the day-to-day activities with 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 at least one annual general meeting of Shareholders and Directors must be called. Accounts of an additional must be ready in accordance with Income tax Act and also Companies Act. 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 the positive side, Shareholders of any Company can change 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 regarding shareholders connected with Public Limited Company could be unlimited along with 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 the organization to trade its shares freely through the stock alternate. 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 Boss. As in the case associated with a Private Company, a Public Limited Clients are also an independent legal person, its existence is not affected the actual death, retirement or insolvency of any one its shareholders.