Doing business in India requires one to select a type of business organization. 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 belonging to 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 does not have 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 applicable. Same is true for other indirect taxes like VAT, Excise many others. 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 is the reason why 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 subjected to maximum of 20 partners. A partnership deed is prepared that details the quantity 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 businesses The Indian Partnership Act. A partnership is also permitted to purchase assets in its name. However web-sites such assets always be 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 an outside Permanent Account Number (PAN) is used on the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be belonging to meet business liability claims of the partnership firm. Also losses incurred outcome 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 aren’t treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm in the court of guidelines.

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 cover. The maximum liability of each partner within an LLP is proscribed to the extent of his/her purchase of the firm. An Online LLP Formation in India 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. Somebody or Public Limited Company as well as Partnership Firms might 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 subscribe to company shares. On subscribing to shares, the owners (members) become shareholders on the company. A non-public Limited Company is a separate legal entity both in terms of taxation and also liability. The private liability within the shareholders is proscribed to their share funding. 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 set and signed by the promoters (initial shareholders) of the company. These are then published to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To tend to the day-to-day activities in the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden when compared to a Partnership and LLP. For example, the Board of Directors must meet every quarter and at least one annual general meeting of Shareholders and Directors should be called. Accounts of enterprise must prepare in accordance with Taxes Act as well as 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 associated with Company can change without affecting the operational or legal standing for this company. Generally Venture Capital investors prefer to invest in businesses which can be Private Companies since permits great a higher separation between ownership and processes.

Public Limited Company

Public Limited Company is compared to a Private Company without the pain . difference being that connected with shareholders connected with Public Limited Company could be unlimited using a minimum seven members. A Public Company can be either listed in a stock exchange or remain unlisted. A Listed Public Limited Company allows shareholders of the organization to trade its shares freely throughout the stock return. Such a company requires more public disclosures and compliance from federal government including appointment of independent directors throughout the board, public disclosure of books of accounts, cap of salaries of Directors and Head honcho. As in the case associated with a Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected the actual death, retirement or insolvency of any of its investors.