Doing business in India requires one to pick a type of business company. 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 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 each of these entities in detail
Sole Proprietorship
This is the most easy business entity to establish in India. It doesn’t need 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 repair tax is applicable, then registration with the service tax department is applicable. Same is true for other indirect taxes like VAT, Excise thus. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to individual another. However, assets of this firm may be sold from one person diverse. Proprietors of sole proprietorship firms have unlimited business liability. This radically, and owners’ personal assets could be attached to meet business liability claims.
Partnership
A partnership firm in India is governed by The Partnership Act, 1932. Two or more persons can form a Partnership subject to maximum of 20 partners. A partnership deed is prepared that details amazed capital each partner will contribute towards 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 allowed to purchase assets in the name. However web pages such assets include 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 a separate Permanent Account Number (PAN) is used on 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 as being a result 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 are not treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm from a court of law.
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 cover. The maximum liability of each partner inside LLP is proscribed to the extent of his/her investment in the rigid. An LLP has its own Permanent Account Number (PAN) and legal status. LLP Formation 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 may be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is much a C-Corporation in north america. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, the owners (members) become shareholders of the company. A private Limited Company is a separate legal entity both must taxation and also liability. The private liability of the shareholders is proscribed to their share cash. A private limited company can be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are prepared and signed by the promoters (initial shareholders) with the company. All of these then submitted to the Registrar along with applicable registration fees. Such company get a 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 when comparing a Partnership and LLP. For example, the Board of Directors must meet every quarter and looking after annual general meeting of Shareholders and Directors should be called. Accounts of this company must get ready in accordance with Taxes 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 the positive side, Shareholders of this Company can go up without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses that are Private Companies since permits great degree of separation between ownership and processes.
Public Limited Company
Public Limited Company is related to a Private Company utilizing difference being that connected with shareholders of a Public Limited Company could be unlimited using 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 vehicle to trade its shares freely on the stock exchange. Such a company requires more public disclosures and compliance from the government including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case associated with a Private Company, a Public Limited Clients are also an impartial legal person, its existence is not affected the actual death, retirement or insolvency of any one its investors.