Doing business in India requires one to select a type of business body. In India one can choose from five different types of legal entities to conduct industry. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice of the business entity is obsessed with various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at each of these entities in detail
Sole Proprietorship
This is the most easy business entity to establish in India. It doesn’t need its own Permanent Account Number (PAN) and the PAN of the owner (Proprietor) acts as the PAN for the Sole Proprietorship firm. Registrations numerous 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 imperative. 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 those firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This signifies that 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 subjected to maximum of 20 partners. A partnership deed is prepared that details the amount of capital each partner will contribute to 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 permitted to purchase assets in the name. However the owner of 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 other Permanent Account Number (PAN) is used on 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 might 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 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 is often a new type of business entity established by an Act of the Parliament. LLP Formation Online 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 an LLP is limited to the extent of his/her investment in the firm. 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 private or Public Limited Company as well as Partnership Firms can be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is much a C-Corporation in north america. Private Limited Company allows its owners to join to company shares. On subscribing to shares, owners (members) become shareholders of this company. Somebody Limited Clients are a separate legal entity both treated by simply taxation and also liability. The private liability among the 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 Piece of Association are positioned and signed by the promoters (initial shareholders) for this company. These are then submitted to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To care for the day-to-day activities for this company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden n comparison to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and you ought to annual general meeting of Shareholders and Directors end up being called. Accounts of an additional must be ready in accordance with Income tax Act and also 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 good side, Shareholders of this Company can go up without affecting the operational or legal standing within the company. Generally Venture Capital investors prefer to invest in businesses which can be Private Companies since permits great greater level separation between ownership and operations.
Public Limited Company
Public Limited Company is similar to a Private Company utilizing difference being that number of shareholders of the Public Limited Company can be unlimited having a minimum seven members. A Public Company can be either mentioned in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely throughout the stock exchange. Such a company requires more public disclosures and compliance from the government including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case associated with a Private Company, a Public Limited Clients are also a separate legal person, its existence is not affected the particular death, retirement or insolvency of its stakeholders.