Doing business in India requires one to choose a type of business organization. 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 on the business entity is an issue of 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 with some other 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 compelled. Same is true for other indirect taxes like VAT, Excise and. It is not possible to transfer the ownership of a Sole Proprietorship from one in order to individual another. However, assets of such firm may be sold from one person various. 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 the quantity of 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 its name. However the owner of such assets become 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 separate 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 with act of negligence of one partner is liable for payment from every partner of the partnership firm.
A partnership firm may or may 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 does not prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of law.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is 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 in an LLP is restricted to the extent of his/her purchase of 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. Someone or Public Limited Company as well as Partnership Firms are permitted to be converted to a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is significantly like a C-Corporation in the united states. Private Limited Company allows its owners to join to company shares. On subscribing to shares, owners (members) become shareholders of the company. A personal Limited Company is a separate legal entity both when considering taxation as well as liability. The individual liability within the shareholders is restricted to their share finances. A private limited company can be formed by registering an additional name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Piece of Association are able and signed by the promoters (initial shareholders) within the company. Fundamental essentials then listed in the Registrar along with applicable registration fees. Such company can have between 2 to 50 members. To maintain 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 a minumum of one annual general meeting of Shareholders and Directors end up being called. Accounts of this company must get ready in accordance with Taxes Act as well as 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 good side, Shareholders of such a Company can go up without affecting the operational or legal standing within the company. Generally Venture Capital investors in order to invest in businesses which can be Private Companies since permits great amount separation between ownership and processes.
Public Limited Company
Public Limited Company is a Private Company with no difference being that connected with shareholders of a typical Public Limited Company can be unlimited by using a minimum seven members. A Public Company can be either mentioned in a stock game or remain unlisted. A Listed Public Limited Company allows shareholders of business to trade its shares freely through the stock convert. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors in the board, public disclosure of books of accounts, cap of salaries of Directors and Owner. As in the case of a Private Company, a Public Limited Liability Partnerhsip Registration in India Online Company is also an independent legal person, its existence is not affected by the death, retirement or insolvency of any one its investors.