Doing business in India requires one to choose a type of business body. In India one can choose from five different types of legal entities to conduct business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice in the business entity is reliant on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at these things entities in detail
This is the most easy business entity to determine in India. It won’t 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, when 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 person to another. However, assets of the 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details you may capital each partner will contribute on 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-sites 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 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 to 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 is almost certainly 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 along with ROF, it aren’t treated as legal document. However, this does not 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 (LLP) firm can be 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 program. The maximum liability of each partner in an LLP Incorproation Online in India has limitations to the extent of his/her investment in the set. 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 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 u . s. Private Limited Company allows its owners to join to company shares. On subscribing to shares, pet owners (members) become shareholders of this company. A private Limited Clients are a separate legal entity both when considering taxation as well as liability. Individual liability of this shareholders is limited to their share finances. A private limited company can be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are positioned and signed by the promoters (initial shareholders) of the company. All of these then listed in the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To maintain the day-to-day activities with the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden n comparison to the 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 business must prepare in accordance with Income tax Act as well as Companies Act. Also Companies are taxed twice if earnings 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 any Company can change without affecting the operational or legal standing of the company. Generally Venture Capital investors prefer to invest in businesses are usually Private Companies since it allows great greater level separation between ownership and operations.
Public Limited Company
Public Limited Company is a Private Company with the difference being that connected with shareholders of a Public Limited Company could be unlimited along with a minimum seven members. A Public Company can be either listed in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely throughout the stock alternate. 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 Owner. As in the case of a Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected the actual death, retirement or insolvency of some of its investors.