Doing business in India requires one to pick a type of business organization. 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 in the business entity is dependent 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 doesn’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 with various government departments are required only on a need basis. For example, in case the business provides services and service tax is applicable, then registration with the service tax department is forced. 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 person another. However, assets of those firm may be sold from one person to another. Proprietors of sole proprietorship firms have unlimited business liability. This means that 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 total amount 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 in accordance with The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However internet websites such assets become 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 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 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 with the ROF, it may not be treated as legal document. However, this does not 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 (LLP) firm can be a new involving 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 in an LLP is proscribed to the extent of his/her investment in the firm. An LLP has its own Permanent Account Number (PAN) and legal status. Online LLP Formation 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 into a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is much like a C-Corporation in north america. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, pet owners (members) become shareholders of this company. Somebody Limited Company is a separate legal entity both the actual strategy taxation as well as liability. The personal liability from the shareholders is fixed to their share funding. A private limited company could be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association have decided and signed by the promoters (initial shareholders) within the company. These are then listed in the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To maintain the day-to-day activities in the company, Directors are appointed by the Shareholders. A private Company has more compliance burden when comparing a Partnership and LLP. For example, the Board of Directors must meet every quarter and you ought to annual general meeting of Shareholders and Directors should be called. Accounts of an additional must prepare yourself in accordance with Tax Act as well as Companies Conduct themselves. 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 can change without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses are usually Private Companies since it allows great degree of separation between ownership and operations.
Public Limited Company
Public Limited Company is a Private Company however difference being that quantity of shareholders of a typical Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either placed in a stock market or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely throughout the stock convert. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors in 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 a separate legal person, its existence is not affected the actual death, retirement or insolvency of each of its stakeholders.