Doing business in India requires one to select 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 of the business entity is reliant on 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 set up in India. It doesn’t need its own Permanent Account Number (PAN) and the PAN of the owner (Proprietor) acts as the PAN for the Sole Proprietorship firm. Registrations different 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 forced. 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 this firm may be sold from one person various. Proprietors of sole proprietorship firms have unlimited business liability. This mean 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details the total amount of 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 as per The Indian Partnership Act. A partnership is also allowed to purchase assets in the name. However web-sites such assets always 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 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 attached 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 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 is probably 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 guidelines.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is 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 cover. The maximum liability of each partner a great LLP has limitations to the extent of his/her purchase of the tone. 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 person 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 particular. 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 when considering taxation as well as liability. Individual liability of this shareholders is limited to their share monetary. A private limited company can be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association are able and signed by the promoters (initial shareholders) with the company. Usually are all products 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. A private Company has more compliance burden when compared to a Partnership and Online LLP Registration Process in India. For example, the Board of Directors must meet every quarter and you ought to annual general meeting of Shareholders and Directors end up being called. Accounts of this company must prepare in accordance with Income tax Act and also Companies Performance. 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 the positive side, Shareholders of associated with Company will vary without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses have got Private Companies since it allows great degree of separation between ownership and operations.
Public Limited Company
Public Limited Company is similar to a Private Company with the difference being that number of shareholders of a real Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either submitted to a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely throughout the stock alternate. Such a company requires more public disclosures and compliance from the government 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 a Private Company, a Public Limited Company is also motivated legal person, its existence is not affected from your death, retirement or insolvency of some of its investors.