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 in the business entity is obsessed with 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 several government departments are required only on a need basis. For example, if the business provides services and repair tax is applicable, then registration with the service tax department is forced. Same is true for other indirect taxes like VAT, Excise etc. It is not possible to transfer the ownership of a Sole Proprietorship from one individual another. However, assets of this firm may be sold from one person a brand new. Proprietors of sole proprietorship firms infinite business liability. This signifies 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 subject to maximum of 20 partners. A partnership deed is prepared that details you may 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 become 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 attached with meet business liability claims of the partnership firm. Also losses incurred as being a result 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 your 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 within a court of policies.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm can be 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 an 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 person or Public Limited Company as well as Partnership Firms are permitted to be converted into a Limited Liability Partnerhsip Registration in India Online Liability Partnership.
Private Limited Company
A Private Limited Company in India is much a C-Corporation in the. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, the owners (members) become shareholders belonging to the company. An exclusive Limited Company is a separate legal entity both when considering taxation as well as liability. The personal liability of the shareholders is fixed to their share funding. A private limited company could be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Actual Association have decided and signed by the promoters (initial shareholders) of the company. Usually are all products then published to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To look after the day-to-day activities with the company, Directors are appointed by the Shareholders. Someone Company has more compliance burden when comparing a Partnership and LLP. 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 business must be prepared 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 any Company is capable of turning without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since permits great greater level separation between ownership and operations.
Public Limited Company
Public Limited Company is compared to a Private Company utilizing difference being that number of shareholders of a Public Limited Company could be unlimited by using a minimum seven members. A Public Company can be either mentioned in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of vehicle to trade its shares freely close to stock alternate. Such a company requires more public disclosures and compliance from the government including appointment of independent directors relating to 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 Clients are also motivated legal person, its existence is not affected the particular death, retirement or insolvency of some of its investors.