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 business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice from the business entity is reliant on 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 set up 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 different 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 thus. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to person another. However, assets of such firm may be sold from one person various. Proprietors of sole proprietorship firms infinite business liability. This is the reason why owners’ personal assets could 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 amount 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 permitted to purchase assets in the name. However web pages 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 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 due to 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 an issue ROF, it may not be treated as legal document. However, this won’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 (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 immunity. The maximum liability of each partner in an LLP is proscribed to the extent of his/her purchase of the organisation. An LLP has its own Permanent Account Number (PAN) and legal status. LLP Registration Online in India 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 may be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is much like a C-Corporation in the united states. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, owners (members) become shareholders in the company. A private Limited Clients are a separate legal entity both treated by simply taxation as well as liability. The personal liability from the shareholders is limited to their share cash. 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 able and signed by the promoters (initial shareholders) for this company. Usually are all products then sent to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To tend the day-to-day activities with the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden n comparison to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and looking after annual general meeting of Shareholders and Directors should be called. Accounts of the company must be prepared in accordance with Taxes Act as well as Companies Federal 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 is capable of turning 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 will be a Private Company with no difference being that connected with shareholders of a real Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either placed in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely more than a stock alternate. Such a company requires more public disclosures and compliance from the government including appointment of independent directors within the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case associated with Private Company, a Public Limited Clients are also an impartial legal person, its existence is not affected the actual death, retirement or insolvency of each of its investors.