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 industry. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice on 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
This is the most easy business entity to establish 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 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 those firm may be sold from one person diverse. Proprietors of sole proprietorship firms have unlimited business liability. This is the reason why 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 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 in order to purchase assets in the name. However the owner of such assets become the 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 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 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 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 may not be treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of guidelines.
Limited Liability Partnership
Limited Liability Partnership (Online LLP Formation in India) firm is often a new regarding 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 immunity. The maximum liability of each partner within LLP has limitations 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. A personal 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 similar to a C-Corporation in the. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, owners (members) become shareholders of this company. An exclusive Limited Company is a separate legal entity both in terms of taxation as well as liability. The individual liability of this shareholders is restricted to their share funding. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association have decided and signed by the promoters (initial shareholders) with the company. Fundamental essentials then listed in the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To tend to the day-to-day activities with the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden when compared to 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 must be called. Accounts of the company must prepare yourself in accordance with Income tax Act as well as 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 good side, Shareholders of this Company will vary without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses in which Private Companies since permits great greater level separation between ownership and processes.
Public Limited Company
Public Limited Company will be a Private Company with the difference being that quantity of shareholders of a real Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either indexed by a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely throughout the stock swapping. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors throughout the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case associated with Private Company, a Public Limited Clients are also motivated legal person, its existence is not affected from your death, retirement or insolvency of any one its investors.