Different Types of Business Entities India

Different Types of Business Entities India

A business entity is an entity that is formed and administered as per commercial law in order to engage in business activities, charitable work, or other activities allowable. Most often, business entities are formed to sell a product or a service. There are many types of business entities defined in the legal systems of various countries.

Oxford’s English Dictionary provides ‘business’ the following meanings 

·        A person’s regular occupation, profession or trade.

·        An activity that someone is engaged in.

·        Works that have to be done or matters that have to be attended to.

·        The practice of making one’s living by engaging in commerce.

·        Operating, especially in commerce.

The term “business” is very common and popular in usage. The derived terms of business are also used comely such as business cards, business cycle, business day, business hours, business like, businessman, business person, business process, business studies etc.

Proprietorship

A business registered in the name of an individual is called Sole Proprietorship. A single person is completely responsible for the entire business with the business and the owner not being separate from each other. The owner funds the business, takes any profits and bears any losses.

It is a very popular among the unorganised sector, particularly small traders and merchants. There is no such thing as registration; proprietorships are recognised by other registrations.

It does not involve any complex rules or accounting. Personal assets and business assets are not separated from each other. Any profits from the business are just added to the business owner’s income for taxation purposes.

Similarly, any losses become the personal losses of a business owner. In case the business starts incurring losses and additional money is needed to compensate those losses, the personal assets of the owner itself are put at risk.

Advantages of a Proprietorship

·        Minimal Compliance

·        Easy to Start

·        Relatively Inexpensive

Partnership

A General Partnership is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in the Partnership Deed. Here the roles, responsibilities and the share of each partner are specifically defined in a legal partnership agreement.

Any profit earned by the business is shared between partners according to the legal partnership agreement. In case there are losses, each of the partners is personally responsible. Personal assets of partners may be used to compensate the losses incurred, if any.

Advantages of a Proprietorship

·        Minimal Compliance

·        Easy to Start

·        Relatively Inexpensive

Documents Required for Partnership Registration

• Form No. 1 (Application for registration under Partnership Act) 
• Original copy of Partnership Deed, signed by all partners
• Affidavit declaring intention to become partner
• Rental or lease agreement of the property/campus on which the business is set

One Person Company

OPC is a newly introduced type of company and was introduced in the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a OPC is that there can be only one member in a OPC, while a minimum of two members are required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership.

Similar to a Company, an OPC is a separate legal entity from its members, offers limited liability protection to its shareholders, has continuity of business and is easy to incorporate.

This is a company in which one man holds practically the whole of the share capital of the company and in order to meet the statutory requirement of minimum number of members, some dummy members hold one or two shares each. The dummy members are usually nominees of principal shareholder. The principal shareholder is in a position to enjoy the profits of the business with limited liability. Such type of companies are perfectly valid and not illegal.

Private Limited Company

Private Limited Company, the most popular legal structure for businesses, is an easy to form and of the most sophisticated forms of business entity in India. All you need to do is register the directors with Ministry of Corporate Affairs (MCA) Here, business assets are separated from personal assets. Every shareholder is just responsible for his share of the total capital. Private Limited Companies need to maintain records of financial transactions, board meetings, and annual reports and so on.

A private limited company has a minimum of two members and a maximum of 200 members. These shares can be sold / transferred to another individual who then also becomes one of the owners of the company.

Why Choose Private Limited Company Registration: 

·        It is flexible and has limited liability.

·        A greater capital contribution and greater stability

·        The possibility to grow big and expand

Private Limited Company can be of three types:

i) Company limited by shares – A company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.

ii) Company limited by guarantee – A company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound-up.

iii) Unlimited company – A company not having any limit on the liability of its members.

Advantages of Private Limited Company:

·        Limited Liability

·        Separate Legal Entity

·        Investment-ready

·        Easy Debt Access

·        Borrowing Capacity

·        Uninterrupted Existence

·        Easy Transferability

·        Owning Property

Disadvantages of Private Limited Company:

·        The statutory compliance are high 

·        Requires a high setup cost as compare to others

·        The involvement of others in the decision making 

·        The restriction to transfer shares to others without an agreement

Limited Liability Partnership

With the concept introduced in 2009, a LLP functions as a structured business model. It is a separate legal entity from the partnership entity and business assets are separate from the personal assets of the partners. In case the business incurs losses, the personal assets of partners are not put at risk as the maximum liability of every partner is defined by his share capital in the entity.

Compared to Partnership and Sole Proprietorship, Limited Liability Companies always have better credibility among investors. The main reasons include proper maintenance of financial records, incorporation records and tax records.

Any of the above given business entity registration you can make online; here are some very popular company registration firms are as below you can reach them as you wish and you convenient one.

·        Vakilsearch

·        Indiafilings

·        Quickcompany

·        online-company-registrations