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 agency. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice in 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
This is the most easy business entity to establish 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 individual another. However, assets of this 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.
A partnership firm in India is governed by The Partnership Act, 1932. Two or more persons can form a Partnership prone to maximum of 20 partners. A partnership deed is prepared that details you may capital each partner will contribute on 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 allowed to purchase assets in its name. However web pages 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 an outside Permanent Account Number (PAN) is allotted to 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 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 an issue ROF, it is probably not 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 law.
Limited Liability Partnership
Limited Liability Partnership (Online LLP Incorporation in India) firm can be 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 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. A private or Public Limited Company as well as Partnership Firms can be converted into a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is similar to a C-Corporation in u . s. Private Limited Company allows its owners to subscribe to company shares. On subscribing to shares, the owners (members) become shareholders on the company. Somebody Limited Company is a separate legal entity both treated by simply taxation as well as liability. Private liability of the shareholders is bound to their share cash. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are able and signed by the promoters (initial shareholders) for this company. All of these then sent to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To look after the day-to-day activities of the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden if compared to the 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 end up being called. Accounts of business must get ready in accordance with Taxes Act and also Companies Performance. 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 the positive side, Shareholders of such a Company are able to turn without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses which can be Private Companies since it allows great a higher separation between ownership and operations.
Public Limited Company
Public Limited Company is similar to a Private Company however difference being that associated with shareholders of the Public Limited Company can be unlimited using a minimum seven members. A Public Company can be either indexed by a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely on the stock alternate. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors relating to 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 Company is also an impartial legal person, its existence is not affected coming from the death, retirement or insolvency of any of its stakeholders.