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The different Types of Business Entities in India

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 business. 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 organizations entities in detail

Sole Proprietorship

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, when the business provides services and repair tax is applicable, then registration with the service tax department is required. Same is true for other indirect taxes like VAT, Excise many others. 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 diverse. Proprietors of sole proprietorship firms have unlimited business liability. This is the reason why owners' personal assets can 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details amazed 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 businesses The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However the one who owns such assets will be 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 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 linked with meet business liability claims of the partnership firm. Also losses incurred with 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 making use of ROF, it aren't treated as legal document. However, it doesn't prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of statute.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is really a new type 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 in an LLP is limited to the extent of his/her purchase of the tone. An LLP Incorproation Online in India 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. A person 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 similar to a C-Corporation in the united states. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, pet owners (members) become shareholders of the company. A personal Limited Clients are a separate legal entity both in terms of taxation and also liability. Individual liability among the shareholders is proscribed to their share cash. A private limited company can be formed by registering business name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are prepared and signed by the promoters (initial shareholders) within the company. All of these then submitted to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To tend to the day-to-day activities with the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden n comparison 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 end up being called. Accounts of enterprise must be ready 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 good side, Shareholders of this Company will vary without affecting the operational or legal standing of the company. Generally Venture Capital investors prefer to invest in businesses in which Private Companies since permits great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company is related to a Private Company however difference being that regarding shareholders connected with Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either listed in a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely throughout the stock alternate. 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 Ceo. As in the case associated with an Private Company, a Public Limited Company is also motivated legal person, its existence is not affected by the death, retirement or insolvency of any of its investors.