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The various Types of Business Entities in India

Doing business in India requires one to pick a type of business thing. 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 on the business entity is right down to various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.

Lets look at all of these businesses entities in detail

Sole Proprietorship

This is the most easy business entity set up 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 some other 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 applicable. Same is true for other indirect taxes like VAT, Excise and. 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 to another. Proprietors of sole proprietorship firms have unlimited business liability. This means that owners' personal assets could 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 prone to maximum of 20 partners. A partnership deed is prepared that details the quantity of 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 businesses The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However the one who owns 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 an outside Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be belonging to 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 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 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 policies.

Limited Liability Partnership

Limited Liability Partnership (LLP) firm is really a new associated with 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 immunity. The maximum liability of each partner within LLP is proscribed to the extent of his/her investment in the set. An LLP has its own Permanent Account Number (PAN) and legal status. LLP Registration Online in India also provides protection to partners for illegal or unauthorized actions taken by other partners of the LLP. Somebody or Public Limited Company as well as Partnership Firms might be converted into a Limited Liability Partnership.

Private Limited Company

A Private Limited Company in India is in order to 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 in the company. A private Limited Company is a separate legal entity both must taxation and also liability. Private liability of this shareholders is bound to their share finances. 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) for this company. Of those ingredients then listed in the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To maintain the day-to-day activities within the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden when comparing 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 an additional must be ready in accordance with Taxes Act and also Companies Federal 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 good side, Shareholders of this type of Company is capable of turning without affecting the operational or legal standing of the company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since it allows great greater level separation between ownership and processes.

Public Limited Company

Public Limited Company will be a Private Company utilizing difference being that quantity of shareholders of a real Public Limited Company can be unlimited having a minimum seven members. A Public Company can be either indexed by a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely close to stock return. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors in the board, public disclosure of books of accounts, cap of salaries of Directors and Head honcho. As in the case associated with Private Company, a Public Limited Clients are also motivated legal person, its existence is not affected from your death, retirement or insolvency of some of its investors.