Doing business in India requires one to select a type of business company. In India one can choose from five different types of legal entities to conduct web business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice in the business entity is right down to various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at organizations entities in detail
Sole Proprietorship
This is the most easy business entity to determine 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 several government departments are required only on a need basis. For example, generally if 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 individual another. However, assets of such firm may be sold from one person 1. Proprietors of sole proprietorship firms have unlimited business liability. This is the reason why 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 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 reported by The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However the owner of such assets include 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 belonging to meet business liability claims of the partnership firm. Also losses incurred brought about by act of negligence of one partner is liable for payment from every partner of the partnership firm.
A partnership firm may or might 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 your 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 is often a new regarding business entity established by an Act of the Parliament. Online LLP Registration Procedure India allows members to retain flexibility of ownership (similar to Partnership Firm) but provides a liability policy cover. The maximum liability of each partner within LLP is limited 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. Somebody or Public Limited Company as well as Partnership Firms are permitted to be converted into a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is in order to a C-Corporation in the particular. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, pet owners (members) become shareholders in the company. A personal Limited Company is a separate legal entity both when considering taxation and also liability. Individual liability of this shareholders is proscribed to their share finances. A private limited company could be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are positioned and signed by the promoters (initial shareholders) for this company. Of those ingredients then submitted to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To care for the day-to-day activities of 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 at least one annual general meeting of Shareholders and Directors end up being called. Accounts of this company must be prepared in accordance with Income tax Act and also 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 the positive side, Shareholders of this type of Company will vary without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since permits great a higher separation between ownership and operations.
Public Limited Company
Public Limited Company will be a Private Company utilizing 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 placed in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely more than a stock exchange. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors within the board, public disclosure of books of accounts, cap of salaries of Directors and Head honcho. As in the case of a Private Company, a Public Limited Company is also a separate legal person, its existence is not affected by the death, retirement or insolvency of its stakeholders.