Doing business in India requires one to select 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 of the business entity is dependent 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
Sole Proprietorship
This is the most easy business entity to establish 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 numerous government departments are required only on a need basis. For example, if 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 etc. 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 to another. Proprietors of sole proprietorship firms infinite business liability. This radically, and owners’ personal assets can 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 towards 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 in order to purchase assets in the name. However internet websites such assets include the partners of the firm. A partnership may/may not be dissolved in case of death of any partner. The partnership doesn’t really have its own legal standing although other 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 an issue ROF, it are not treated as legal document. However, this 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 Partnership (LLP) firm is a new type of business entity established by an Act of the Parliament. LLP Formation Online in India allows members to retain flexibility of ownership (similar to Partnership Firm) but provides a liability protection. The maximum liability of each partner within an LLP has limitations to the extent of his/her purchase of the firm. 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 personal 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 much like a C-Corporation in u . s. Private Limited Company allows its owners to join to company shares. On subscribing to shares, owners (members) become shareholders belonging to the company. A private Limited Clients are a separate legal entity both in terms of taxation and also liability. The personal liability among the shareholders is limited to their share capital. A private limited company could be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are able and signed by the promoters (initial shareholders) with the company. These are then published to the Registrar along with applicable registration fees. Such company get between 2 to 50 members. To maintain the day-to-day activities of the company, Directors are appointed by the Shareholders. A non-public Company has more compliance burden when comparing a Partnership and LLP. For example, the Board of Directors must meet every quarter and a minumum of one annual general meeting of Shareholders and Directors should be called. Accounts of the company must prepare in accordance with Income tax Act and also Companies Performance. 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 this type of Company can change 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 a higher separation between ownership and operations.
Public Limited Company
Public Limited Company is similar to a Private Company with the difference being that connected with shareholders of a real Public Limited Company could be unlimited using 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 the company to trade its shares freely through the stock alternate. Such a company requires more public disclosures and compliance from the government including appointment of independent directors within the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case associated with a Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected by the death, retirement or insolvency of each of its shareholders.