Doing business in India requires one to choose a type of business entity. 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 dependent on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at organizations entities in detail
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, when the business provides services and repair 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 individual another. However, assets of those firm may be sold from one person 1. Proprietors of sole proprietorship firms infinite business liability. This signifies that owners' personal assets can 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 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 businesses The Indian Partnership Act. A partnership is also in order 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 any partner. The partnership doesn't really have its own legal standing although a unique 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 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 along with 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 legislated rules.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is really 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 within an LLP is restricted to the extent of his/her purchase of the organisation. An LLP Formation Online in India 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 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 a subscription to company shares. On subscribing to shares, the owners (members) become shareholders on the company. A personal Limited Clients are a separate legal entity both in terms of taxation and also liability. The individual liability from the shareholders is proscribed to their share finances. A private limited company could be formed by registering company 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) within the company. All of these then sent to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To look after the day-to-day activities in the company, Directors are appointed by the Shareholders. A private Company has more compliance burden when comparing a Partnership and LLP. For example, the Board of Directors must meet every quarter and looking after annual general meeting of Shareholders and Directors must be called. Accounts of enterprise must be prepared in accordance with Taxes Act and also Companies Performance. 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 any Company are able to turn without affecting the operational or legal standing for the company. Generally Venture Capital investors in order to invest in businesses have got Private Companies since permits great identify separation between ownership and operations.
Public Limited Company
Public Limited Company is compared to a Private Company utilizing difference being that quantity of shareholders of a Public Limited Company could be unlimited with a minimum seven members. A Public Company can be either mentioned in a stock market or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely through the stock swapping. 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 Head honcho. As in the case in a Private Company, a Public Limited Clients are also an impartial legal person, its existence is not affected the particular death, retirement or insolvency of its investors.