Starting a business in India requires you to choose a specific business structure. You can look over these five legitimate Business ownerships in India. There are Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Limited Company, and Public Limited Company. The decision of the business element is subjected to different factors. They are tax collection, proprietor obligation compliance burden, investment and funding, and exit strategy.
Let’s dig into a detailed discussion of all these different entities.
This is the most simple type of business ownerships in India. Here, you don’t require a Permanent Account Number (PAN). For a sole proprietorship, the PAN of the individual (Proprietor) is enough to vouch for the Proprietorship firm. Enlistments with different government divisions are taken into consideration if needed.
For instance, on the off chance if there is a business that provides a taxable service, then registration with the service tax department is required. The same is valid for other aberrant duties like VAT, Excise and so on. It is not possible to transfer a proprietorship to another person. Owners of such firms have endless business obligations. In a sole proprietorship, your personal assets and resources can be at stake due to different liability risks.
An organization firm in India is represented by The Partnership Act, 1932. At least two individuals can shape a Partnership firm subject to a limit of a maximum of 20 partners. In an organization, partnership deeds are made and each partner decides upon their capital contribution in the firm. It is also decided on how much profit or loss each partner will share. The working partners of the association are likewise permitted to attract a compensation understanding with The Indian Partnership Act. They are also permitted to buy resources in its name. In such cases, these resources belong to the firm. In case of the sudden death of a partner the partnership may or may not be dissolved.
Even though this type of organization doesn’t generally have its own lawful standing, but still a different Permanent Account Number (PAN) is created for the association. The partners of the firm have boundless business liabilities which means their own benefits can be taken away in order to meet business obligations. In case the company faces any loss due to one partner, all the other members needs to equally beat the loss.
An organization firm might possibly be enrolled with the Registrar of Firms (ROF). The enlistment gives some lawful insurance to accomplices on the off chance that they have contrasts between them.
Until an organization deed is enrolled with the ROF, it may not be treated as an authoritative record. In any case, this does not prevent the partnership firm from suing somebody or somebody suing the organization firmly in a courtroom.
This type of business ownerships in India was introduced through the Companies Act 2013 to help different entrepreneurs to start their own ventures. OPC was established to create a single person economic entity.
One of the biggest advantages of a One Person Company (OPC) is that there can be only one member in an OPC, while a minimum of two members is required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership (LLP). Similar to a Company, a One Person Company is a separate legal entity from its promoter, offering limited liability protection to its sole shareholder, while having continuity of business and being easy to incorporate.
Limited Liability Partnership
Limited Liability Partnership (LLP) firm is another type of business element set up by an Act of the Parliament. LLP enables individuals to hold adaptability of proprietorship (like Partnership Firm) and gives obligation insurance. The most extreme risk of each partner in an LLP is restricted to the degree of his/her interest in the firm.
An LLP has its proprietor Permanent Account Number (PAN) and lawful status. LLP additionally gives insurance to accomplices to illicit or unapproved moves made by different accomplices of the LLP. A Private or Public Limited Company just as Partnership Firms are permitted to be changed over into a Limited Liability Partnership.
Private Limited Company
A Private Limited Company in India is like a C-Corporation in the US. This type of business ownerships in India enables proprietors to buy into its offers by paying offer capital charges. On buying into shares, the proprietors/individuals become investors in the organization. A Private Limited Company is a different legitimate substance both as far as tax collection just as a risk. The individual risk of the investors is constrained to their offer capital.
A private restricted organization can be framed by enrolling the organization name with a fitting Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are arranged and marked by the advertisers (introductory investors) of the organization. A Private Limited Company can have between 2 to 50 individuals with the least share capital of Rs 1,00,000 (one lac).
To care for the everyday exercises of the organization, Directors are named by the Shareholders. At least two directors must be named to take care of the everyday undertakings of the organization. A Private Limited Company has more consistency load when contrasted with a Partnership and LLP.
For instance, the Board of Directors must meet each quarter and at any rate, and one yearly broad gathering of Shareholders and Directors must be called. Records of the organization must be set up as per Income Tax Act just as the Companies Act.
Additionally, Companies are saddled twice if benefits are to be disseminated to Shareholders. Shutting a Private Limited Company is a repetitive procedure and requires numerous months.
On the positive side, Shareholders of a Private Limited Company can change without influencing the operational or lawful remaining of the organization. For the most part, Venture Capital financial specialists like to put resources into organizations that are Private Limited Company since it permits an incredible level of detachment among possession and activities.
It likewise enables financial specialists to leave the organization by selling shares without being subject to organization issues.
Public Limited Company
Public Limited Company is like Private Limited Company with the distinction being that the number of investors of a Public Limited Company can be boundless with a base of seven individuals.
It is commonly hard to set up a public limited company. A Public Limited Company can be either recorded in a stock trade or stay unlisted. A Listed Public Limited Company enables investors of the organization to exchange its offers uninhibitedly on the stock trade.
A Public Limited Company requires increasingly open revelations and consistence from the legislature just as market standard SEBI (Securities and Exchange Board of India) including the arrangement of free executives on the board, open exposure of books of records, top of pay rates of Directors and CEO.
As a Private Limited Company, a Public Limited Company is likewise an autonomous lawful individual, isn’t influenced by the demise, retirement or bankruptcy of any of its investors.