Doing business in India requires one to pick a type of business company. 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 from the business entity is right down to various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at organizations entities in detail
Sole Proprietorship
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, generally if the business provides services and service tax is applicable, then registration with the service tax department is imperative. Same is true for other indirect taxes like VAT, Excise or anything else. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of the firm may be sold from one person various. Proprietors of sole proprietorship firms infinite 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 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 allowed to purchase assets in its name. However internet websites 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 applied for to insure Permanent Account Number (PAN) is allotted to 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 is almost certainly not 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 are not treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of guidelines.
Limited Liability Partnership
Limited Liability Partnerhsip Registration Online India Liability Partnership (LLP) firm is really a new regarding 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 bound to the extent of his/her investment in 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 LLP. A private or Public Limited Company as well as Partnership Firms are allowed to be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is similar to a C-Corporation in the particular. 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 non-public Limited Company is a separate legal entity both in terms of taxation as well as liability. The personal liability within the shareholders is fixed to their share monetary. A private limited company could be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are positioned and signed by the promoters (initial shareholders) on the company. All of these then submitted to the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To care for the day-to-day activities with the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden when compared to 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 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 the positive side, Shareholders of any Company are able to turn without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses have got Private Companies since permits great greater level separation between ownership and processes.
Public Limited Company
Public Limited Company is related to a Private Company however difference being that associated with shareholders of a real Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either submitted to a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely through the stock exchange. 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 Ceo. As in the case associated with Private Company, a Public Limited Company is also an impartial legal person, its existence is not affected by the death, retirement or insolvency of each of its shareholders.