Doing business in India requires one to select a type of business company. 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 from the business entity is dependent on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at best man entities in detail
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 several government departments are required only on a need basis. For example, if the business provides services and repair tax is applicable, then registration with the service tax department is compelled. 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 person to another. However, assets of the firm may be sold from one person 1. Proprietors of sole proprietorship firms have unlimited business liability. This signifies that 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 be subject to maximum of 20 partners. A partnership deed is prepared that details the quantity of 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 reported by 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 partner. The partnership doesn’t really have its own legal standing although a separate Permanent Account Number (PAN) is allotted to 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 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 with the 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 the court of law.
Limited Liability Partnership
Limited Liability Partnership (Online LLP Incorporation in India) firm is really 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 policy cover. The maximum liability of each partner a great LLP is proscribed to the extent of his/her purchase of 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 LLP. A private or Public Limited Company as well as Partnership Firms might be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is much like a C-Corporation in the. Private Limited Company allows its owners a subscription to company shares. On subscribing to shares, the owners (members) become shareholders belonging to the company. A private Limited Company is a separate legal entity both when considering taxation and also liability. The personal liability of the shareholders is bound to their share cash. A private limited company can be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association are positioned and signed by the promoters (initial shareholders) of the company. Of those ingredients then published to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To tend the day-to-day activities with the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden when compared to 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 prepare yourself in accordance with Tax Act and also Companies Act. 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 good side, Shareholders of this Company can go up without affecting the operational or legal standing within the company. Generally Venture Capital investors prefer to invest in businesses are usually Private Companies since permits great identify separation between ownership and processes.
Public Limited Company
Public Limited Company will be a Private Company without the pain . difference being that number of shareholders of a real Public Limited Company can be unlimited with 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 the organization to trade its shares freely on the stock convert. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors relating to the board, public disclosure of books of accounts, cap of salaries of Directors and Head honcho. As in the case associated with an Private Company, a Public Limited Clients are also an unbiased legal person, its existence is not affected from your death, retirement or insolvency of any of its investors.