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Some of the Different Kinds of Business Entities in India
When starting a company, one has to make the decision of what type of business he/she wants to proceed with. In India, there are basically five types of business forms - sole proprietorship, limited liability, public limited company, partnership firm, and private limited company.
All the five types have their own set of rules, advantages and disadvantages. The choice of the type of business entity depends upon factors like owner liability, taxation, funding, investment and exit strategy.
Here are the five types of business types explained in detail:-
1. Sole partnership -
It is one of the easiest business entities to set up in India. In this type, you only have to register your company with the government, especially if you need to arrange a contract or deal with them, otherwise it is not compulsory. It is not possible for an owner to transfer the ownership of the company to another individual. Assets can be sold to anyone with a contract deal. Sole proprietorship entails for unlimited liability, which means in case of need the owner’s personal assets can also be used for business purpose.
2. Partnership -
Every partnership firm is governed by the partnership act of 1932. Two or more partners can start a partnership firm, but they should not be more than 20 in number. The amount of capital and the profit ratio is decided and declared in the partnership deed of the firm. Partnership company registration in India is optional for the partners. They may or may not register their company with registrar of firms.
3. Limited liability partnership -
Limited liability partnership is very similar to the partnership firms in general. The only difference is that in LLP, the partners only bear the profits and losses according to their capital investment in the company. An LLP is a separate legal entity and has to have a PAN. A public limited company or a private limited company can be converted to an LLP if needed.
4. Private limited company -
A private limited company depends upon the shares owned by an individual in a company. A private limited company holds a separate legal entity and has to be valued separately for taxation as well as for liability purpose. The liability of the shareholders is limited to their investment in share capital. A private limited company can have 2 or more members, but it should not cross the limit of 50 members. It should have a minimum share capital of 1 lakh. The shareholders are the mainly responsible for this type of entity. They run the business and have the first right on the profits made by the company.
5. Public limited company -
It has almost the similar structure as of the private limited company. The difference here is more than 50 % of shares are owned by government or government bodies. A PLC can have unlimited members but the minimum number of members is 7.
Before you start any type of business you should find out more about the particular type.
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