Types of Entities for Doing Business

Every economy grows by the business, infrastructure and other systems. Depending upon the cultural, political and sub sets, there are different kinds of entities under which a business is run and regulated. In India, there are number of ways for setting up and running business depending upon pros and cons of each type. Let us discuss them a little more, where I will share with you, the pros of each type of entities.

Different types of entities for doing business in India-

• One person company
• Private Limited company
• Public Limited company
• Section 8 company
• Partnership firm
• Limited Liability Partnership firm (LLP)
• Hindu Undivided Family (HUF)
• Liaison Office

ONE PERSON COMPANY:- The concept of One Person Company in India was introduced through 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 One Person Company (OPC) is that there can be only one member in an OPC.

Benefits:-

• Total control over management
• Few Compliances
• Exceptions under The Companies Act, 2013 from various provisions
• Limited Liability
• No minimum capital requirement

PRIVATE COMPANY:-  Private Limited Company is the most prevalent and popular type of corporate legal entity in India. The Ministry of Corporate Affairs governs private limited company registration in India. Minimum Member is required two (2) and maximum is Two hundred (200).

Benefits:-

• Exceptions under The Companies Act, 2013 from various provisions
• Closed company, having control over management
• No minimum capital requirement

PUBLIC COMPANY:– A limited company grants limited liability to its owners and management. The Ministry of Corporate Affairs governs public limited company registration in India. Minimum Member is required seven (7) and no limit in maximum number of members. Being a public company allows a firm to sell shares to investors this is beneficial in raising capital.

Benefits:-

• Transfer of shares/ securities to anyone
• Raising of money from public
• Limited Liability
• No minimum capital requirement

SECTION 8 COMPANY:- Section 8 company is basically incorporated with main objective to promote and enhance the fields such as art, commerce, science, sports, environmental protection. They can be incorporated as either Public or Private Company.

Benefits:-

• They avail benefits under section 80G of the Income Tax Act, 1961.
• They can be directly funded from subscriptions or donations made to them
• Ease at Transfer of title/ownership
• No stamp duty payable at the time of incorporation
• Limited Liability
• No minimum capital requirement

PARTNERSHIP FIRM:- A Partnership is one of the most important forms of a business organization, where two or more people come together to form a business and divide the profits thereof in an agreed ratio. In India, partnerships are governed by the Indian Partnership Act 1932 (the Act).

Benefits:-

• start-up costs are low
• greater borrowing capacity
• limited external regulation

LIMITED LIABILITY PARTNERSHIP FIRM (LLP):- Limited Liability Partnership (LLP) was introduced in India by way of the Limited Liability Partnership Act, 2008. The basic premise behind the introduction of Limited Liability Partnership (LLP) is to provide a form of business entity that is simple to maintain while providing limited liability to the owners.

Benefits:-

• Fewer formalities
• No minimum capital requirement
• No limit on owners of business
• No requirement of compulsory Audit
• Savings from lower compliance burden

HINDU UNDIVIDED FIRM (HUF):- HUF means Hindu Undivided Family. You can save taxes by creating a family unit and pooling in assets to form a HUF. HUF is taxed separately from its members. A Hindu family can come together and form a HUF. Buddhists, Jains, and Sikhs can also form a HUF. HUF has its own PAN and files tax returns independent of its members.

Benefits:-

• Tax savings
• HUF is automatically created at the time of marriage
• Once a HUF is formed it must be formally registered in its name. A HUF should have a legal deed.

LIAISON OFFICE:- Liaison offices (LOs) are a popular option for foreign investors exploring the Indian market for the first time, and unsure of how the country’s liberalizing FDI caps will affect their business. The Foreign Exchange Management Act (FEMA) governs the application and approval process for the establishment of a liaison or branch office in India.

Benefits:-

• Beneficial for foreign investors
• Increase Import and export
• Represent the overseas head company in India.

The decision to start a business by choosing any entity type varies from person to person and business to business. Depending upon the nature of business, advantages and demerits, we choose a specific type of entity for doing our business.

Disclaimer:– The above article inclusive list and short brief of different entities for doing business in India . There are many other important aspects also, which are considered for taking such step, hence, one need to go through them thoroughly. The author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

(The Author is Corporate Consultant and provides varied array of services including Start-ups, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- [email protected] and Contact Number: 91-8178515005)