Doing business in India requires one to select a type of business organization. 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 on 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 set up in India. It doesn’t involve 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, in case the business provides services and repair tax is applicable, then registration with the service tax department is forced. 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 person to another. However, assets of those firm may be sold from one person to another. Proprietors of sole proprietorship firms infinite business liability. This mean that 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 the amount of 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 based upon The Indian Partnership Act. A partnership is also permitted to purchase assets in its name. However web-sites such assets will be 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 applied for to insure 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 outcome act of negligence of one partner is liable for payment from every partner of the partnership firm.
A partnership firm may or may 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 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 in a court of statute.
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 program. The maximum liability of each partner within an 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 also provides protection to partners for illegal or unauthorized actions taken by other partners of the Online LLP Formation in India. A person 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 much like a C-Corporation in north america. Private Limited Company allows its owners to join to company shares. On subscribing to shares, pet owners (members) become shareholders in the company. A private Limited Clients are a separate legal entity both in terms of taxation as well as liability. Private liability within the shareholders is bound to their share funding. A private limited company can be formed by registering business 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) of the company. Usually are all products then sent to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To tend to the day-to-day activities of the company, Directors are appointed by the Shareholders. A personal Company has more compliance burden if compared to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and some form of annual general meeting of Shareholders and Directors must be called. Accounts of business must prepare yourself in accordance with Taxes Act as well as Companies Act. 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 such a Company will vary without affecting the operational or legal standing within the company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since it allows great greater level separation between ownership and operations.
Public Limited Company
Public Limited Company is compared to a Private Company however difference being that regarding shareholders connected with Public Limited Company could be unlimited using 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 business to trade its shares freely on the stock exchange. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors on the board, public disclosure of books of accounts, cap of salaries of Directors and Chief executive officer. As in the case in a Private Company, a Public Limited Clients are also motivated legal person, its existence is not affected from your death, retirement or insolvency of any one its shareholders.