If you are thinking for starting a business in India then first you have to choose that which legal entity is best for your business needs and goal. Now a days these are the most popular Business entities:
1.) Sole Proprietorship
3.) Limited Liability Partnership (LLP)
4.) One Person Company (OPC)
5.) Private Limited Company (Pvt Ltd)
6.) Public Limited Company (Ltd)
1. Sole Proprietorship Firm:
The sole proprietorship is the simplest business form under which a single person can operate a business with a brand name. 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 and day to day affairs. A sole proprietorship can operate under the name of its owner.
The sole proprietorship is getting popular because of its simplicity and nominal cost. A sole proprietor need only to register his or her name and secure local licenses, and the sole proprietor is ready for business.
2. Partnership Firm:
The Partnership is that form of business entity which is owned and controlled by two or more persons who jointly contribute to the funds required for the conduct of business. A partnership firm can be formed with minimum of 2 and the maximum of 20 persons.
Partnership refers to the relation of principal and agent among the partners. Each partner represents the other partners in his dealings with the third parties and acts as their agent. In his capacity as agent, each partner minds the other partners with his commitments or liabilities contracted on their behalf. In India, partnership firms are governed by the Indian Partnership Act, 1932. Under this Act, it is not compulsory to register the partnership firm. There is however, only one formality, i.e. the partners has to decide the terms and conditions on which they agree to conduct their business jointly with other partner/partners. This agreement of partnership is called “partnership deed”.
The agreement can be oral or written. It is preferable to have partnership deed in written form. It is prepared on a stamp paper of Rs. 15 and should preferably be attested by a notary public, though it is not a legal requirement.
3. Limited Liability Companies:
Limited Liability Partnership (LLP) is an alternative corporate business entity in India that provides the benefits of limited liability of a company but allows its members the flexibility of organizing their internal management on the basis of a mutually-arrived agreement, as is the case in a partnership firm.
Limited Liability Partnership in India has been enacted by the Parliament of India in 2008 by Limited Liability Partnership (LLP) Act of 2008.
This business entity is very popular in western world, it would be useful for small and medium enterprises in general and for the enterprises in services sector in particular, including professionals and knowledge based enterprises. Particularly huge size law firms, CA firms or other networks of professional are using this business entity.
As proposed in the Bill, LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. While the LLP will be a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP.
Contrary to partnership in LLP no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
4. One Person Company (OPC):
The concept of One Person Company [OPC] is a new form of business, introduced by The Companies Act, 2013 [No.18 of 2013], thereby enabling Entrepreneur(s) carrying on the business in the Sole-Proprietor form of business to enter into a Corporate Framework.
One Person Company is a hybrid of Sole-Proprietor and Company form of business, and has been provided with concessional/relaxed requirements under the Act.
5. Private Limited Company (Pvt.Ltd.):
A Limited Company or Private limited company is a voluntary association of not less than two and not more than fifty members, whose liability is limited, the transfer of shares is limited to its members and the general public is not allowed to invite to subscribe to its shares or debentures.
In India it is the most famous or most popular business entity concept to fix a business.
- Shareholders’ right to transfer shares is restricted;
- The number of shareholders is limited to fifty;
- An invitation to the public to subscribe to any shares or debentures is prohibited.
6. Public Limited Company (Ltd):
A public limited company is a voluntary association of members which is incorporated and, therefore has a separate legal existence and the liability of whose members is limited.
A Public Limited Company is also the most popular form of business entity used for Indian and Foreign Investors in India (including USA investors in India).
It must have at least seven shareholders.ü
A public company is not authorized to start business upon the grant of the certificate of incorporation. In order to be eligible to commence business as a corporation, it must obtain another document called “trading certificate”.ü
It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting business.ü
A public company is required to have at least three directors.ü
It must hold statutory meetings and obtain government approval for the appointment of the management.ü