Doing business in India requires one to pick 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 on the business entity is obsessed with 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 establish 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 various government departments are required only on a need basis. For example, if the business provides services and repair tax is applicable, then registration with the service tax department is required. 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 various. Proprietors of sole proprietorship firms infinite 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 be subject to maximum of 20 partners. A partnership deed is prepared that details you may capital each partner will contribute to 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 in accordance with The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However web-sites such assets are 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 a unique Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be linked with 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 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 does not prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of law.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is really 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 policy cover. The maximum liability of each partner inside LLP 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 Registration Online in India also provides protection to partners for illegal or unauthorized actions taken by other partners of the LLP. Somebody or Public Limited Company as well as Partnership Firms are allowed to be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is similar to a C-Corporation in the particular. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, the owners (members) become shareholders of this company. A private Limited Clients are a separate legal entity both must taxation as well as liability. The private liability of the shareholders is fixed to their share capital. A private limited company could be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are set and signed by the promoters (initial shareholders) for this company. Usually are all products then published to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To look after the day-to-day activities for this company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden if compared to the 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 end up being called. Accounts of business must be ready in accordance with Tax Act and also Companies Undertaking. 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 type of Company are able to turn without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses have got Private Companies since it allows great identify separation between ownership and processes.
Public Limited Company
Public Limited Company is related to a Private Company without the pain . difference being that quantity of shareholders of a Public Limited Company can be unlimited along with 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 the organization to trade its shares freely close to stock exchange. Such a company requires more public disclosures and compliance from the government including appointment of independent directors within the board, public disclosure of books of accounts, cap of salaries of Directors and Chief executive officer. As in the case associated with a Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected coming from the death, retirement or insolvency of some of its investors.