Doing business in India requires one to select a type of business company. 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 from the business entity is right down to various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at each of these entities in detail
This is the most easy business entity set up 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 with various government departments are required only on a need basis. For example, generally if the business provides services and service tax is applicable, then registration with the service tax department is compelled. 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 in order to person another. However, assets of those firm may be sold from one person 1. Proprietors of sole proprietorship firms have unlimited business liability. This radically, and 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 subjected to maximum of 20 partners. A partnership deed is prepared that details the quantity 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 as per The Indian Partnership Act. A partnership is also permitted to purchase assets in its name. However internet websites such assets always be 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 an outside 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 with 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 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 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 within a court of statute.
Limited Liability Partnership
Limited Liability Partnership (Online LLP Registration Process in India) 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 program. The maximum liability of each partner inside LLP is restricted to the extent of his/her purchase of the tone. 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 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 in order to a C-Corporation in the. Private Limited Company allows its owners to join to company shares. On subscribing to shares, pet owners (members) become shareholders of the company. An exclusive Limited Company is a separate legal entity both must taxation as well as liability. Individual liability among the shareholders is limited 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 Actual Association are prepared and signed by the promoters (initial shareholders) within the company. These are then listed in the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To look after 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 looking after annual general meeting of Shareholders and Directors must be called. Accounts of an additional must prepare in accordance with Tax Act as well as 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 good side, Shareholders of associated with Company will vary without affecting the operational or legal standing for this company. Generally Venture Capital investors in order to invest in businesses have got Private Companies since permits great identify separation between ownership and processes.
Public Limited Company
Public Limited Company is compared to a Private Company utilizing difference being that connected with shareholders of a real Public Limited Company could be unlimited with a minimum seven members. A Public Company can be either placed in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of the company to trade its shares freely throughout the stock exchange. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Head honcho. As in the case of a Private Company, a Public Limited Clients are also motivated legal person, its existence is not affected by the death, retirement or insolvency of some of its investors.