Doing business in India requires one to select a type of business entity. 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 from the business entity is an issue of various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at best man 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 numerous 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 compelled. Same is true for other indirect taxes like VAT, Excise or anything else. It is not possible to transfer the ownership of a Sole Proprietorship from one person to another. However, assets of which firm may be sold from one person various. Proprietors of sole proprietorship firms infinite business liability. This radically, and 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 subjected to maximum of 20 partners. A partnership deed is prepared that details you may 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 reported by The Indian Partnership Act. A partnership is also in order to purchase assets in its name. However web-sites such assets include the partners of the firm. A partnership may/may not be dissolved in case of death of partner. The partnership doesn’t really have its own legal standing although applied for to insure 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 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 are not treated as legal document. However, this doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of statute.
Limited Liability Partnership
Limited Liability Partnership (Online LLP Incorporation in India) 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 cover. The maximum liability of each partner a great LLP has limitations 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 personal or Public Limited Company as well as Partnership Firms can be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is similar to a C-Corporation in the particular. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, owners (members) become shareholders belonging to the company. An exclusive Limited Clients are a separate legal entity both the actual strategy taxation and also liability. The individual liability from the shareholders is restricted to their share monetary. A private limited company could be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are able and signed by the promoters (initial shareholders) on the company. These are then submitted to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To tend the day-to-day activities in the company, Directors are appointed by the Shareholders. Someone Company has more compliance burden when comparing 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 must be called. Accounts of the company must be prepared in accordance with Income tax Act and also 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 good side, Shareholders of associated with Company are able to turn without affecting the operational or legal standing for the company. Generally Venture Capital investors in order 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 related to a Private Company with no difference being that quantity of shareholders of the Public Limited Company can be unlimited along with a minimum seven members. A Public Company can be either listed in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely more than a stock alternate. Such a company requires more public disclosures and compliance from the government including appointment of independent directors on 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 an unbiased legal person, its existence is not affected coming from the death, retirement or insolvency of some of its investors.