Doing business in India requires one to select a type of business entity. 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 each of these entities in detail
Sole Proprietorship
This is the most easy business entity to establish 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 numerous government departments are required only on a need basis. For example, generally 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 person to another. However, assets of the firm may be sold from one person various. Proprietors of sole proprietorship firms infinite business liability. This signifies that 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 total amount of 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 in accordance with The Indian Partnership Act. A partnership is also allowed to purchase assets in its name. However web pages such assets include the partners of the firm. A partnership may/may not be dissolved in case of death in regards to a 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 connected to meet business liability claims of the partnership firm. Also losses incurred due to act of negligence of one partner is liable for payment from every partner of the partnership firm.
A partnership firm may or may not 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 making use of ROF, it is probably not treated as legal document. However, it doesn’t prevent either the Partnership firm from suing someone or someone suing the partnership firm within a court of statute.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is a new involving 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 in an LLP is bound to the extent of his/her purchase of the organisation. An LLP has its own Permanent Account Number (PAN) and legal status. LLP Incorproation Online in India 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 Partnership.
Private Limited Company
A Private Limited Company in India is similar to a C-Corporation in the united states. Private Limited Company allows its owners to sign up to company shares. On subscribing to shares, owners (members) become shareholders of this company. A personal Limited Company is a separate legal entity both when considering taxation as well as liability. Individual liability among the shareholders is restricted to their share funding. A private limited company can be formed by registering corporation name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are set and signed by the promoters (initial shareholders) for this company. Fundamental essentials then submitted to the Registrar along with applicable registration fees. Such company possess between 2 to 50 members. To care for the day-to-day activities in the company, Directors are appointed by the Shareholders. An exclusive Company has more compliance burden when comparing 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 end up being called. Accounts of the company must be prepared in accordance with Taxes Act and also Companies Conduct themselves. 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 Company is capable of turning without affecting the operational or legal standing of this company. Generally Venture Capital investors in order to invest in businesses are usually Private Companies since it allows great identify separation between ownership and processes.
Public Limited Company
Public Limited Company will be a Private Company with the difference being that regarding shareholders connected with Public Limited Company can be unlimited along with a minimum seven members. A Public Company can be either mentioned in a wall street game or remain unlisted. A Listed Public Limited Company allows shareholders of they to trade its shares freely more than a stock swapping. 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 Boss. As in the case associated with an Private Company, a Public Limited Company is also an unbiased legal person, its existence is not affected coming from the death, retirement or insolvency of its investors.