Doing Business in India | India Business Entity Types | India Business Guide
Posted by Rahul Dev on January 3, 2013
Doing Business in India | India Business Entity Types | India Business Guide
India at present is one of the fastest growing economies in the world. Globalization and liberalization have been facilitating the growth of India. Following is a tour of different business entities in India, their overview, advantages and disadvantages as well.
The business entities allowed by Indian Law are –
1. Proprietorship
2. Private Limited company
3. Public Limited Company
4. Limited Liability Partnership
5. Partnership firm
In addition to these entities, there are types of entities available for foreign investors having business in India –
1. Representative Office
2. Project Office
3. Branch Office
4. Joint Venture Company
5. Wholly Owned Subsidiary Company
PROPRIETORSHIP
In India, proprietorship is the most ancient form of business entity. Though it is the easiest form to set up but it is not suitable for each business type. Proprietorship does not need a formal registration but trade related licenses are necessary to obtain. This business entity returns with a limited growth by involving small risk, small growth and small capital. In comparison with other entities, this business provides less hardship on the owner and he is solely responsible of the authority. There are no laws differences between the business and its owner, both go hand in hand. This business is preferred among small traders like tailors, artists or even freelancers.
The major disadvantage of proprietorship is it has a limited growth, so it is less attractive to the investors or to the creditors.
PRIVATE LIMITED COMPANY
The companies act, 1956 defines the sustenance of the Private Limited Company. A Private Limited Company needs to get itself registered with Registrar of Companies (ROC). ROCs are located all over the country in different states and provinces, ones a business started in one state can be carried out all over India. The minimum funds required to get the company registered is INR 100,000. It might get increased at the time of additional stamp duty. A minimum of two members or maximum of 50 members as its shareholders are required by a Private Limited Company. The number of directors can also vary from two to twelve.
The shareholders are themselves legally responsible for the shares subscribed by them. The shares cannot be transferred to anyone except among the members. Shareholders possess fewer liabilities in comparison with the Director/Manager. A Private Limited Company is easy to set up relatively a Public Limited Company.
PUBLIC LIMITED COMPANY
The Company’s Act, 1956 holds the balancing terms of Public Limited Company. A Public Limited Company also needs to register itself with ROC. A Public Limited Company should have a minimum of 7 shareholders and the maximum number of shareholders is not constrained, whereas a minimum of three directors and a maximum of 12 directors are mandatory. The minimum funds required to get a Public Limited Company started is INR 500,000 and as the capital scores off INR 50 million, a company secretary should be hired.
The ownership and the management of the company are completely different from each other and do not play any role in each other’s work. Director’s having the majority play a crucial role in decision making.
Following are the important conditions which are necessary for the agreement of a Public Limited Company –
1. Before the allotment of shares it should be made sure that the outline of the Company is filed with the Registrar of Companies.
2. Before starting the Company, it is mandatory to have a certification of commencement of business from Registrar of Companies.
3. The Public Limited Company should have at least three Directors.
4. The members of the Company should file the basic legal report to the Registrar of Companies.
Deemed Public Companies
Some private companies are deemed to be private under section 43 (A) of Companies Act 1956, under the following requirements –
1. The average yearly upheaval of a Deemed Public Company goes up to INR 250 million.
2. Deemed Companies make advertisements to attract the customers, and by this step, it gets gold of 25% or more of the paid up capital.
Limited Liability Partnership (LLP)
LLP is a combination of incorporated company and partnerships. All the partners have the authority to manage the business directly. The main aim of a LLP is to target on profit and for this there is no restriction to the number of partners but it is necessary for at least one partner to hold Indian citizenship. They all can execute the legal business by filing the incorporated document to the Registrar. The capital required by the LLP is very less and the accounts are settled yearly with the Registrar by every LLP.
LLP is getting popular among small business as it provides limited liability among partners. LLP is being welcomed internationally as well and that is adding the advantages to it.
Partnership Firm
Indian Partnership Act, 1932 holds the laws of the Partnership Firm. Registration of a partnership firm is not mandatory; it solely depends on the partners. But if a third party comes in between, to take a legal action, registration of the firm is required. Partnership firm is based on the agreement between partners varying from two to twenty. Partnership firm allows the individuals such as doctors, management consultants, lawyers, etc to combine their resources and expand the business entity. At time of fulfilling the dues of the firms, the assets of the firm are used but the creditors can also demand for personal property of the partners. Retirement or death of any partner leads to the disintegration of the firm. A partnership agreement when stamped and registered is called “partnership deed”. Following are the points required to fulfil a partnership deed –
1. Name of all the partners.
2. Type of business.
3. Name of the firm.
4. Name of place where business is being worked on.
5. Role played by each partner.
6. Financial status of each partner.
7. Other terms related to the nature of business.
Partnership firm is an optimum setup for small scale business which only requires minimum capital and sources to manage the business. But partnership firm also have its own disadvantages like a) no concordant authority, b) restriction on transfer of rights, c) limited life, and many more.
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Contributors: Prity Khastgir and Rahul Dev
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