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 web business. These include Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company and Public Limited Company. The choice of the business entity is an issue of various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at these things 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 with some other government departments are required only on a need basis. For example, when 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 thus. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of such 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 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 be subject to maximum of 20 partners. A partnership deed is prepared that details amazed 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 reported by The Indian Partnership Act. A partnership is also in order to purchase assets in the name. However the owner of such assets include the partners of the firm. A partnership may/may not be dissolved in case of death of a partner. The partnership doesn’t really have its own legal standing although applied for to insure 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 with act of negligence of one partner is liable for payment from every partner of the partnership firm.
A partnership firm may or may 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 an issue ROF, it most likely is not treated as legal document. However, this won’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of legislated rules.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is often 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 program. The maximum liability of each partner in an LLP is restricted to the extent of his/her purchase of the set. 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 Online LLP Registration Process in India. A personal or Public Limited Company as well as Partnership Firms may 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 to join to company shares. On subscribing to shares, owners (members) become shareholders belonging to the company. A personal Limited Company is a separate legal entity both must taxation as well as liability. The individual liability within the shareholders is proscribed to their share finances. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are set and signed by the promoters (initial shareholders) on the company. All of these then listed in the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To look after the day-to-day activities for this company, Directors are appointed by the Shareholders. A personal Company has more compliance burden when comparing 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 end up being called. Accounts of an additional must prepare in accordance with Tax Act and also 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 any Company can go up without affecting the operational or legal standing of the company. Generally Venture Capital investors in order to invest in businesses which can be Private Companies since permits great amount separation between ownership and processes.
Public Limited Company
Public Limited Company is compared to a Private Company with no difference being that number of shareholders of a typical Public Limited Company could be unlimited by using a minimum seven members. A Public Company can be either listed in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely on the stock return. 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 Owner. As in the case associated with an Private Company, a Public Limited Clients are also a separate legal person, its existence is not affected coming from the death, retirement or insolvency of each of its stakeholders.