Doing business in India requires one to pick a type of business body. 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 in 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
Sole Proprietorship
This is the most easy business entity to establish 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 with some other government departments are required only on a need basis. For example, generally if 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 many others. It is not possible to transfer the ownership of a Sole Proprietorship from one person to another. However, assets of this firm may be sold from one person to another. Proprietors of sole proprietorship firms infinite business liability. This mean that 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 subject to maximum of 20 partners. A partnership deed is prepared that details the quantity of capital each partner will contribute towards 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 in order to purchase assets in its name. However web-sites such assets include the 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 attached with meet business liability claims of the partnership firm. Also losses incurred outcome 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 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 policies.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm can be 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 policy cover. The maximum liability of each partner a great LLP has limitations 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 Incorproation Online in India. Someone 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 in order to a C-Corporation in u . s. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, pet owners (members) become shareholders in the company. A non-public Limited Company is a separate legal entity both when considering taxation and also liability. The individual liability of this shareholders is limited to their share monetary. A private limited company could be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are able and signed by the promoters (initial shareholders) of the company. Of those ingredients then submitted to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To care for the day-to-day activities for this company, Directors are appointed by the Shareholders. Someone 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 enterprise must prepare yourself in accordance with Income tax Act and also Companies Undertaking. 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 good side, Shareholders of associated with Company can change 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 permits great degree of separation between ownership and processes.
Public Limited Company
Public Limited Company is related to a Private Company with no difference being that regarding shareholders of the Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either listed in a stock market or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely close to stock alternate. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors on the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case in a Private Company, a Public Limited Clients are also an unbiased legal person, its existence is not affected the particular death, retirement or insolvency of any of its investors.