Doing business in India requires one to select a type of business organization. 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 reliant on 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 determine in India. It doesn’t involve 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, in case the business provides services and service tax is applicable, then registration with the service tax department is applicable. 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 person another. However, assets of the firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This means 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 you may capital each partner will contribute into 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 permitted to purchase assets in its name. However web-sites such assets become the 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 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 outcome 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, this does not prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of policies.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is often 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 cover. The maximum liability of each partner within an LLP is restricted to the extent of his/her investment in the firm. An LLP has its own Permanent Account Number (PAN) and legal status. Online LLP Registration Process 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 similar to a C-Corporation in u . s. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, pet owners (members) become shareholders of this company. A private Limited Clients are a separate legal entity both treated by simply taxation and also liability. The individual liability from the shareholders is proscribed to their share finances. A private limited company could be formed by registering company 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 submitted to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To maintain the day-to-day activities within the company, Directors are appointed by the Shareholders. Someone Company has more compliance burden n comparison to the a Partnership and LLP. For example, the Board of Directors must meet every quarter and a minumum of one annual general meeting of Shareholders and Directors must be called. Accounts of the company must be ready in accordance with Taxes Act as well as Companies Conduct themselves. 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 the positive side, Shareholders of such a Company is capable of turning without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses that are Private Companies since permits great identify separation between ownership and operations.
Public Limited Company
Public Limited Company will be a Private Company utilizing difference being that quantity of shareholders of a Public Limited Company could be unlimited by 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 vehicle to trade its shares freely more than a stock alternate. Such a company requires more public disclosures and compliance from brand new including appointment of independent directors within the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case associated with an Private Company, a Public Limited Clients are also an impartial legal person, its existence is not affected the particular death, retirement or insolvency of its investors.