Types of Business Structures in India
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The document discusses the different types of business structures available in India, including sole proprietorships, partnerships, private limited companies, public limited companies, and limited liability partnerships. It provides details on the key features of each structure, such as ownership, liability, administration requirements, and the types of businesses that each structure is best suited for. Choosing the right business structure depends on factors like personal liability, taxation, and administration needs for each individual business owner.
Types of Business Structures in India
- 1. www.loanXpress.com Types of Business Structures In India
- 2. 2www.loanXpress.co m November 2016 Different types of Business Structures in India A business entity is an entity that is formed and administered as per commercial law in order to engage in business activities. There are various kinds of business structures in India. Business structure also plays a role on how you want your business to be perceived. • Sole Proprietorship Firm • Partnership Firm • Private Limited Company • Public Limited Company • Limited Liabilities Partnership Choosing a business structure is one of the most important decisions taken by entrepreneurs Each structure has its own pros an cons and it depends upon the individual circumstances of each of these business owners as to which structure will best suit his business. These include level of personal liability, your personal tax position, level of administration etc.
- 3. 3www.loanXpress.co m November 2016 Sole Proprietorship Firm This is the oldest and most common form of business. It is a One-man organization where a single individual owns, manages and controls the whole business. Its features are: • The entire profit goes to the sole proprietor, similarly he also bears the risk or losses of the firm • The entire capital of the business is provided by the owner. He may raise more funds through borrowings • The proprietor and the business enterprise are one and the same in the eyes of the law. • The liability of the proprietor is unlimited. • There are less legal formalities. • This type of structure is suitable for the production of goods which involve manual skills such as jewellery-making, tailoring ,haircutting etc. This type of structure is suitable where the market is limited, localized and where customer gives importance to personal attention.
- 4. 4www.loanXpress.co m November 2016 Partnership Firm A Partnership Firm is a business between two or more persons who have agreed to share the profits of a business carried on by them. The owners of a partnership business are individually known as partners and collectively as a firm. The relation between the partners of a partnership firm is created by contract which may be verbal, written or implied and it is known as a ‘Partnership Deed’. Features of a Partnership Firm are: • A minimum of 2 persons are required to start a partnership business • The partners share profits in any ratio as agreed by them • The partners have unlimited liability • The law does not recognise the firm as a separate entity distinct from its partners This structure is suitable for comparatively small businesses such as retail and wholesale trade, professional services and small manufacturing units. Generally it is seen that many firms start as partnership firms and are later converted into company.
- 5. 5www.loanXpress.co m November 2016 Private Limited Company A Private Limited Company is held by few individuals privately having separate legal entity. In this type of company, the shareholders cannot trade shares publically. It is a legal business entity that offers limited legal protection for shareholders and places restrictions on shareholder ownership. Its features are: • The shareholders cannot sell or transfer their shares without offering them to other shareholders of the company • Shareholders must approve sale or transfer of shares • Shareholders cannot offer their shares to the general public on a stock exchange. This not only protects against a hostile takeover, but it also protects the value of company shares from association from stock market. • It can have a maximum of fifty shareholders. • An invitation to the public to subscribe to any shares or debentures is prohibited
- 6. 6www.loanXpress.co m November 2016 Public Limited Company A Public Limited Company is a form of business entity that operates as a separate legal entity from its owners formed and owned by shareholders. Shares of a Public Limited Company are listed and traded at a stock exchange market freely. Shareholders of a Public Limited Company are limited to potentially lose only the amount of money they have paid for the shares they own. This kind of entity are headed by a Board of Directors, normally it comprises of a minimum of 2 members and a maximum of 12 These are elected from the shareholders by the shareholders during the annual general meeting The company does not belong to any person since one person can own only a part of it Public limited companies are strictly regulated and are required by law to publish their complete financial statements annually
- 7. 7www.loanXpress.co m November 2016 Limited Liabilities Partnership A Limited Liabilities Partnership, popularly known as LLP, combines the advantages of both the Company and Partnership into a single form of organization. It provides an alternative to the traditional partnership firm with unlimited liability. LLP is a body incorporate and a legal entity separate from its partners, the partners have the right to manage the business directly, unlike corporate shareholders. One partner is not responsible for another partner’s misconduct or negligence. Features of LLP: • Minimum of two partners and no maximum limit • Should be ‘for profit’ business • LLP shall maintain annual accounts • The right and duties of partners in an LLP, will be governed by the agreement between partners and the partners have the flexibility to devise the agreement as per their choice
- 8. 8www.loanXpress.co m November 2016 We would love to assist you Get in Touch Corporate Office: Vermillion Finalytics Private Limited 4D, Siddhivinayak Chambers, Gandhi Nagar, Opp MIG Cricket Club, Bandra (E), Mumbai – 400 051 Telephone : (022) – 2655 8760 Tollfree : 1800 – 228 - 005 Email : info@LoanXpress.com Website : www.LoanXpress.com