Doing business in India requires one to choose 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 belonging to the business entity is obsessed with 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 does not 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 ever the business provides services and service tax is applicable, then registration with the service tax department is required. 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 person to another. However, assets of the firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This radically, and 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 towards 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 its name. However internet websites such assets become 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 other Permanent Account Number (PAN) is allotted to 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 is almost certainly 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 aren’t treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of statute.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is 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 cover. The maximum liability of each partner a great LLP is proscribed to the extent of his/her investment in the rigid. An LLP has its own Permanent Account Number (PAN) and legal status. LLP Incorproation Online in India 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 are permitted to be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is much like a C-Corporation in north america. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, the owners (members) become shareholders on the company. A non-public Limited Clients are a separate legal entity both when considering taxation and also liability. Individual liability among the shareholders is restricted to their share capital. A private limited company could be formed by registering business name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are able and signed by the promoters (initial shareholders) within the company. Usually are all products 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 of the 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 some form of annual general meeting of Shareholders and Directors should be called. Accounts of this company must get ready in accordance with Taxes Act as well as Companies Federal 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 good side, Shareholders of any Company will vary without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since it allows great identify separation between ownership and operations.
Public Limited Company
Public Limited Company will be a Private Company with no difference being that regarding shareholders of a Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either mentioned in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely close to stock convert. Such a company requires more public disclosures and compliance from the government including appointment of independent directors on the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case associated with an Private Company, a Public Limited Company is also an independent legal person, its existence is not affected coming from the death, retirement or insolvency of some of its stakeholders.