There are different forms of business entities that you can set up in India. A brief description of each along with their main features have been given below.

Sole Proprietorship :

  • The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity.
  • It simply refers to a person who owns the business and is personally responsible for its debts.
  • The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost.

Incorporation of Sole Proprietorship :

A sole proprietor need only register his or her name and secure local licenses, and the sole proprietor is ready for business.

  1. PAN
  2. TAN
  3. Shop Act
  4. VAT /CST

Features of Sole Proprietorship :

  1. Sole proprietors have full discretionary control over operations and business decisions.
  2. As the sole owner of the business, the sole proprietor accepts complete responsibility for the business’s liabilities, as well as its income.
  3. Since the sole proprietorship accepts all the risk, the proprietorship is often subject to less restrictive regulations than partnership and corporation entities.
  4. The sole proprietorship is not required to charter the business with the state, though the business may be required to register the business’s name and operations.

Taxation :

Sole Proprietorship is not taxed as a separate legal entity, But rather, the owner files his business taxes on his personal tax returns.

Partnership Firm :

The Indian Partnership Act, 1932, Section 4, defined partnership as “the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all”. The Uniform Partnership Act of the USA defined a partnership “as an association of two or more persons to carry on as co-owners a business for profit”.

The persons who own the partnership business are individually called ‘partners’ and collectively they are called as ‘firm’ or ‘partnership firm’.

Incorporation of Partnership firm :

Partnership firms in India are governed by the Indian Partnership Act, 1932. While it is not compulsory to register your partnership firm as there are no penalties for non-registration, it is advisable since the following rights are denied to an unregistered firm:

A partnership firm can be registered whether at the time of its formation or even subsequently. You need to file an application with the Registrar of Firms of the area in which your business is located.

  1. Application for partnership registration should include the following information:
    • Name of your firm
    • Name of the place where business is carried on
    • Names of any other place where business is carried on
    • Date of partners joining the firm
    • Full name and permanent address of partners.
    • Duration of the firm
  2. Every partner needs to verify and sign the application
  3. Ensure that the following documents and prescribed fees are enclosed with the registration application :
    • Application for Registration in the prescribed Form – I
    • Duly filled Specimen of Affidavit
    • Certified copy of the Partnership deed
    • Proof of ownership of the place of business or the rental/lease agreement

Once the Registrar of Firms is satisfied that the application procedure has been duly complied with, he shall record an entry of the statement in the Register of Firms and issue a Certificate of Registration.

Features of Partnership firm :

  1. As against proprietorship, there should be at least two persons subject to a maximum of ten persons for banking business and twenty for non-banking business to form a partnership firm.
  2. There is an agreement among the partners to share the profits earned and losses incurred in partnership business.
  3. Partnership is formed by an agreement-oral or written-among the partners.
  4. Partnership is formed to carry on some lawful business and share its profits or losses. If the purpose is to carry some charitable works, for example, it is not regarded as partnership.
  5. Like proprietorship, each partner has unlimited liability in the firm. This means that if the assets of the partnership firm fall short to meet the firm’s obligations, the partners’ private assets will also be used for the purpose.
  6. No partner can transfer his share to any outside person without seeking the consent of all other partners.

Taxation :

Partnership firm is treated as a separate entity. It is immaterial that partnership is registered or not registered.

Limited Liability Parterneship (LLP) :

LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.

The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.

The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.

LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.

Incorporation Of LLP :

  • To register a Indian LLP, need to first apply for a Designated Partner Identification Number (DPIN), which can be done by filing eForm for acquiring the DIN or DPIN.
  • Then need to acquire Digital Signature Certificate and register the same on the portal. Thereafter, need to get the LLP name approved by the Ministry.
  • Once the LLP name is approved, register the LLP by filing the incorporation form.

Features of Limited Liability Partnership :

  1. They are a separate legal entity from their Members.
  2. They have the benefit of limited liability for their Members.
  3. They are taxed as a partnership.
  4. They have the organisational flexibility of a partnership.
  5. Any agreement (“LLP agreement”) between the Members governing the operation of the LLP is a private document which is confidential to the Members.
  6. They must have at least two “designated” Members.
  7. Their “trading disclosure” requirements are similar to those of a company.
  8. They must be registered at Companies House.
  9. Their accounting and filing requirements are similar to those of a company.
  10. They have the ability to create floating charges.

Taxation :

Limited Liability Partnership will be treated as Partnership Firm for the purpose of Income tax.

Private Limited Company :

A private limited company, or LTD, is a type of privately held small business entity.

This type of business entity limits owner liability to their shares, limits the number of shareholders to 50, and restricts shareholders from publicly trading shares.

Incorporation of Private Limited Company :

  1. Application for Director Identification No. (DIN) in Form DIR-3 & DSC (Digital Signature Certificate)
  2. Search for the Company name availability
  3. Application for the name availability
  4. Drafting of Memorandum of Association (MOA) & Articals of Association (AOA)
  5. Filling of e- forms with ROC ( Registrar of companies )
  6. Payment of ROC fees & Stamp Duty
  7. Verification of documents / forms by ROC
  8. Issue of Certificate of Incorporation by ROC

Features of Private Limited Company:

  1. Members– To start a private limited company, a minimum number of 2 members are required and a maximum number of 200 members as per the provisions of the companies act 2013.
  2. Limited Liability– The liability of each member or shareholders is limited. It means that if a company faces loss under any circumstances then its shareholders are liable to sell their own assets for payment. The personal, individual assets of the shareholders are not at risk.
  3. Perpetual succession– The company keeps on existing in the eyes of law even in the case of death, insolvency, bankruptcy of any of its members. This leads to perpetual succession of the company. The life of the company keeps on existing forever.
  4. Index of members– A private company has a privilege over public company as they don’t have to keep an index of its members whereas public company is required to maintain an index of its members.
  5. Number of directors– when it comes to directors a private company needs to have only two directors. With the existence of 2 directors a private company can come into operations.
  6. Paid up capital– it must have a minimum paid up capital of Rs 1 lakh or such higher amount which may be prescribed from time to time.
  7. Prospectus– prospectus is a detailed statement of the company affairs which is issued by a company for its public. However in case of private limited company there is no such need to issue a prospectus because in this public is not invited to subscribe for the shares of the company.
  8. Minimum subscription– It is the amount receive by the company which is 90% of the shares issued within a certain period of time. If the company is not able to receive 90% of the amount then they cannot commence further business. In case of private limited company shares can be allotted to the public without receiving the minimum subscription.
  9. Name– it is mandatory for all the private companies to use the word private limited after its name.

Taxation :

Indian Private Limited Company is considered a tax resident; it is therefore eligible for tax under Income Tax Act, 1961. Tax rate of 30% on the total income and surcharge of 5% if the income exceeds 10 Million plus 3% Education cess & Secondary and Higher Education cess on the total of income tax and surcharge.

Public Limited Company :

Public Limited Company – PLC’ The standard legal designation of a company which has offered shares to the general public and has limited liability.

A Public Limited Company’s stock can be acquired by anyone and holders are only limited to potentially lose the amount paid for the shares.

Incorporation of Public Limited Company :

  1. Application for Director Identification No. (DIN ) in Form DIR-3 & DSC ( Digital Signature Cretificate )
  2. Search for the Company name availability
  3. Application for the name availability
  4. Drafting of Memorandum of Association (MOA) & Articals of Association (AOA)
  5. Filling of e- forms with ROC ( Registrar of companies )
  6. Payment of ROC fees & Stamp Duty
  7. Verification of documents / forms by ROC
  8. Issue of Certificate of Incorporation by ROC

Features of Public Limited Company :

  1. The company has a separate legal existence apart from its members who compose it.
  2. A company must have a minimum of seven members but there is no limit as regards the maximum number.
  3. The company collects its capital by the sale of its shares and those who buy the shares are called the members. The amount so collected is called the share capital.
  4. The shares of a company are freely transferable and that too without the prior consent of other shareholders or without subsequent notice to the company.
  5. As a company is an independent legal person, its existence is not affected by the death, retirement or insolvency of any of its shareholders.

Taxation :

Indian Public Limited Company is considered a tax resident; it is therefore eligible for tax under Income Tax Act, 1961. Tax rate of 30% on the total income and surcharge of 5% if the income exceeds 10 Million plus 3% Education cess & Secondary and Higher Education cess on the total of income tax and surcharge.

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