The various Types of Business Entities in India

Doing business in India requires one to select a type of business entity. In India one can choose from five different types of legal entities to conduct web business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice from the business entity is an issue of various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at organizations entities in detail

Sole Proprietorship

This is the most easy business entity to determine 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 repair 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 in order to individual another. However, assets of which firm may be sold from one person a brand new. Proprietors of sole proprietorship firms have unlimited business liability. This signifies 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 susceptible 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 reported by The Indian Partnership Act. A partnership is also allowed 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 this partner. The partnership doesn’t really have its own legal standing although a unique 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 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 might 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 with the ROF, it may not be treated as legal document. However, this does not 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 often a new associated with 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 protection. The maximum liability of each partner within an LLP is restricted 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 Formation Online in India. A person or Public Limited Company as well as Partnership Firms might be converted to a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much a C-Corporation in the particular. Private Limited Company allows its owners to join to company shares. On subscribing to shares, the owners (members) become shareholders of this company. An exclusive Limited Company is a separate legal entity both must taxation as well as liability. Private liability of this shareholders is limited to their share monetary. A private limited company could be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are prepared and signed by the promoters (initial shareholders) of the company. These are then submitted to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To tend to the day-to-day activities within the company, Directors are appointed by the Shareholders. A private Company has more compliance burden when compared to a Partnership and LLP. For example, the Board of Directors must meet every quarter and a minumum of one annual general meeting of Shareholders and Directors should be called. Accounts of an additional must prepare in accordance with Income tax Act and also Companies 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 the positive side, Shareholders of this Company will vary without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses are usually Private Companies since permits great a higher separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company with the difference being that associated with shareholders of a typical 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 business to trade its shares freely close to stock swapping. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case associated with an Private Company, a Public Limited Clients are also a separate legal person, its existence is not affected from your death, retirement or insolvency of some of its investors.

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