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The various Types of Business Entities in India

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 from the business entity is dependent on 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 establish 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 different 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 imperative. Same is true for other indirect taxes like VAT, Excise etc. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to person another. However, assets of which firm may be sold from one person diverse. Proprietors of sole proprietorship firms infinite business liability. This signifies that 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 into 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 businesses 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 other Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be connected to 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 your ROF, it is probably not treated as legal document. However, it doesn't prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is a new form 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 program. The maximum liability of each partner within LLP is bound to the extent of his/her investment in the organisation. 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 Online LLP Registration in India. A person or Public Limited Company as well as Partnership Firms are allowed to be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is much like a C-Corporation in the particular. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, the owners (members) become shareholders on the company. An exclusive Limited Company is a separate legal entity both when considering taxation and also liability. The personal liability from the shareholders is restricted to their share capital. A private limited company can be formed by registering corporation 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) of the company. These are then sent to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To tend the day-to-day activities for this company, Directors are appointed by the Shareholders. Someone Company has more compliance burden if compared 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 be ready in accordance with Income tax Act as well as Companies Performance. 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 any Company will vary without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since permits great amount separation between ownership and processes.

Public Limited Company

Public Limited Company is similar to a Private Company with the difference being that regarding shareholders connected with Public Limited Company could be unlimited using a minimum seven members. A Public Company can be either submitted to a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely through the stock alternate. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors in the board, public disclosure of books of accounts, cap of salaries of Directors and Ceo. As in the case associated with a Private Company, a Public Limited Clients are also a separate legal person, its existence is not affected coming from the death, retirement or insolvency of any one its stakeholders.