Doing business in India requires one to pick a type of business organization. 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 belonging to the business entity is an issue of 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 establish in India. It doesn’t involve 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 ever the business provides services and repair tax is applicable, then registration with the service tax department is forced. Same is true for other indirect taxes like VAT, Excise etc. 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 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.
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 amazed capital each partner will contribute into 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 reported by The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However internet websites such assets include the partners of the firm. A partnership may/may not be dissolved in case of death of partner. The partnership doesn’t really have its own legal standing although applied for to insure Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be belonging to 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 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 your ROF, it may not be treated as legal document. However, this doesn’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) firm is often a new involving business entity established by an Act of the Parliament. Online LLP Formation in India 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 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 might be converted into a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is similar to a C-Corporation in the particular. Private Limited Company allows its owners to join to company shares. On subscribing to shares, owners (members) become shareholders belonging to the company. A non-public Limited Company is a separate legal entity both the actual strategy taxation as well as liability. The private liability of this shareholders is restricted to their share finances. A private limited company could be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are prepared and signed by the promoters (initial shareholders) within the company. All of these then submitted to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To maintain the day-to-day activities for this company, Directors are appointed by the Shareholders. A non-public 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 end up being called. Accounts of an additional must prepare yourself in accordance with 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 good side, Shareholders of such a Company is capable of turning without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses which can be Private Companies since permits great degree of separation between ownership and operations.
Public Limited Company
Public Limited Company is a Private Company utilizing difference being that connected with shareholders connected with Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either submitted to a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely close to stock swapping. 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 Head honcho. As in the case associated with an Private Company, a Public Limited Clients are also an independent legal person, its existence is not affected coming from the death, retirement or insolvency of any one its investors.