Doing business in India requires one to select a type of business thing. 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 of the business entity is an issue of various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at all of these businesses entities in detail
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 with some other government departments are required only on a need basis. For example, if 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 diverse. Proprietors of sole proprietorship firms have unlimited business liability. This radically, and 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 amount of capital each partner will contribute into 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 as per The Indian Partnership Act. A partnership is also permitted to purchase assets in the name. However web pages such assets are 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 an outside Permanent Account Number (PAN) is used on 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 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 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 along with ROF, it are not treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of statute.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is often a new type 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 inside LLP is bound to the extent of his/her purchase of 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 Incorproation Online in India. A personal or Public Limited Company as well as Partnership Firms are permitted to be converted into a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is in order to a C-Corporation in the particular. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, owners (members) become shareholders on the company. A private Limited Company is a separate legal entity both must taxation and also liability. The private liability among 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 Piece of Association are set and signed by the promoters (initial shareholders) within the company. These are then published 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. An exclusive Company has more compliance burden assigned a Partnership and LLP. For example, the Board of Directors must meet every quarter and at least one annual general meeting of Shareholders and Directors end up being called. Accounts of enterprise must prepare in accordance with Tax Act and also Companies Conduct themselves. Also Companies are taxed twice if profits 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 such a Company is capable of turning without affecting the operational or legal standing for the company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since permits great greater level separation between ownership and operations.
Public Limited Company
Public Limited Company is compared to a Private Company without the pain . difference being that number of shareholders of a typical Public Limited Company can be unlimited having a minimum seven members. A Public Company can be either indexed by a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely through the stock return. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors within 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 Company is also a separate legal person, its existence is not affected from your death, retirement or insolvency of some of its shareholders.