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A business entity is an organization formed by an individual or group of person to conduct business, engage in a trade, or in similar kind of activities. There are various types of entities one can register in India. Below mentioned are the options available to businessmen in India:
1. One Person Company (OPC):
- The concept of One Person Company has been introduced by the Companies Act, 2013. It enables the formulation of an entity with a single member. One of the most important characteristics of One Person Company is that the risk mitigated are limited to the extent of the value of the shares held by such person.
- Shareholder can appoint a nominee who shall become a shareholder in case of death/incapacity of shareholder.
2. Limited Liability Partnership (LLP):
- Limited Liability Partnership is a body corporate formed and incorporated under the Limited Liability Partnership Act, 2008. It is a separate legal entity from its partners. Any change in the partners of an LLP shall not affect the existence, rights, or liabilities of the LLP.
- LLP is an alternative corporate business entity that provides the benefits of limited liability of a company but allows its members the flexibility of organising their internal arrangement on the basis of executed partnership agreement.
- For detailed information, kindly read the below article:
3. Private Limited Company:
- Private Limited Company is one of the most preferable form of business entities in India. Rules and Regulations of a private company are governed by the Companies Act, 2013.
- For detailed information, kindly read the article:
4. Public Limited Company:
- Public Limited Company is a company whose shares are traded on a stock exchange. Public company means a company which is not a private company.
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of the Companies Act, 2013 even where such subsidiary company continues to be a private company in its articles.
5. Section 8 Company:
- A person or an association of persons (hereinafter referred to in this rule as “the proposed company”), desirous of incorporating a company with limited liability without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”, shall make an application along with the fee to the Registrar for a license for operating as a Section 8 Company.
- The main objective of a Section 8 Company is primarily to promote arts, commerce and various forms of social welfare in the form of education, charity, religion and protection of the environment, to name few. Any profits, if generated, here are used in achieving its aforesaid objective.
6. Partnership Firm:
- Partnership Firms in India are governed by the provisions mentioned in the Indian Partnership Act, 1932. A partnership firm is not a separate legal entity distinct from its members. It is merely a collective name given to the individuals composing it.
- Therefore, it has no legal identity separate from the personalities of its constituent members. Partnership Firm are created by executing a partnership deed among the partners. Partnership deed governs the agreed terms and conditions between the partners.
7. 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.
- No legal formalities are required to create a sole proprietorship other than appropriate registration to conduct a business.
Conclusion: Starting and selecting an appropriate form of business entity is a complex decision for the long term effects of the ownership, owner liability and taxation of business. Before starting a new entity the individuals can seek an opinion from Company Secretaries or business lawyer about the best suitable option for the proposed business idea so their interest can be protected in the long run and they can run their business smoothly without any roadblocks.
Article By: Ms Bhavya Sharma, a Practising Company Secretary from Delhi. In case you need any assistance for business registration/incorporation, compliance, advisory services and related queries you can connect with us. You can contact us at legal@bhavyasharmaandassociates.com or for more details you can visit: www.bhavyasharmaandassociates.com
Disclaimer: Although due care and diligence have been taken in preparation and uploading this Article, Bhavya Sharma & Associate shall not be responsible for any loss or damage, resulting from any action taken on the basis of the contents of this Article. Anyone wishing to act on the basis of the material contained herein should do so after cross checking with the circulars, notifications, applicable acts, press release issued by the concerned department or seek appropriate counsel for their situation.
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