Doing business in India requires one to pick a type of business thing. 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 of the business entity is reliant on various factors such as taxation, ownership liabilities, compliance burden, investment options and exit strategy.
Lets look at all of these businesses entities in detail
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, if ever 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 thus. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to individual another. However, assets of which firm may be sold from one person to another. Proprietors of sole proprietorship firms have unlimited business liability. This means that owners’ personal assets could 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 susceptible to maximum of 20 partners. A partnership deed is prepared that details you may capital each partner will contribute on 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 its name. However web-sites 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 a unique 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 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 along with 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 from a court of guidelines.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is 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 immunity. The maximum liability of each partner inside LLP is limited to the extent of his/her investment in 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. Someone or Public Limited Company as well as Partnership Firms are permitted to be converted into a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is similar to a C-Corporation in north america. Private Limited Company allows its owners to join to company shares. On subscribing to shares, owners (members) become shareholders in the company. A non-public Limited Clients are a separate legal entity both treated by simply taxation as well as liability. Individual liability of the shareholders is fixed to their share finances. A private limited company can be formed by registering company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Item of Association have decided and signed by the promoters (initial shareholders) of the company. Of those ingredients then sent to the Registrar along with applicable registration fees. Such company get a between 2 to 50 members. To care for the day-to-day activities in the company, Directors are appointed by the Shareholders. Someone Company has more compliance burden when comparing a Partnership and Online LLP Registration Procedure India. For example, the Board of Directors must meet every quarter and you ought to annual general meeting of Shareholders and Directors must be called. Accounts of the company must be ready in accordance with Taxes Act and also Companies Federal act. Also Companies are taxed twice if earnings 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 such a Company can change without affecting the operational or legal standing of this company. Generally Venture Capital investors prefer to invest in businesses that are Private Companies since it allows great degree of separation between ownership and operations.
Public Limited Company
Public Limited Company is related to a Private Company with the difference being that number of shareholders of a typical Public Limited Company could be unlimited having a minimum seven members. A Public Company can be either placed in a currency markets or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely through the stock alternate. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors on the board, public disclosure of books of accounts, cap of salaries of Directors and Boss. As in the case associated with Private Company, a Public Limited Clients are also an unbiased legal person, its existence is not affected from your death, retirement or insolvency of some of its investors.