Companies in India come in many different shapes and sizes, which means there are just as many different types of companies to choose from when starting your own business. Each one offers their own benefits and disadvantages, so it’s important to understand the differences between them before deciding on one that’s right for you. Here’s an overview of some of the most common types of companies in India, including sole proprietorship, partnership, company limited by shares, company limited by guarantee, and public companies.
Sole Proprietorship Company
This is a traditional business structure which means that it has no legal identity separate from its owner. It’s not a separate entity like a partnership or corporation. Anyone can be a sole proprietor – you don’t need to incorporate, register, or get government approval to operate as one. The main benefit of being an independent contractor is that you are personally responsible for your company’s debts and liabilities, meaning if you run into financial trouble with clients (e.g., don’t get paid for work), you could be forced to declare bankruptcy. However, there are also some disadvantages: you have no protection against lawsuits and personal liability issues may arise. For example, if someone were to get injured on your property while visiting you at home, they could sue both you and your spouse individually. As such, sole proprietorships are only recommended for people who want complete control over their business without having to deal with bureaucracy or paperwork.
Partnership Firm
In partnership firms, there are at least two partners. It could be as small as just 2 partners or a larger number that is required by law. In case of deaths, incapacitation or retirement of any partner, his share has to be sold out and bought by other surviving partners. These are good because they don’t require extra paperwork like registration or filing with government authorities. Only drawback is that it requires more paperwork than a company does for taxation purposes since partnerships follow different rules than companies do when it comes to taxation.
Private Limited Company
A private limited company is a form of incorporated entity (company or corporation) which is owned by its shareholders, who have limited liability. They are set up under Companies Act, 2013. It comes under medium size category (annual turnover Rs 50-100 crore). This form of company is suitable for businesses to quickly grow and expand. A private limited company has two classes of shares: ‘A’ shares with voting rights but no right to income, which are owned by promoters; and ‘B’ shares without voting rights but with right to income, which are held by public.
Public Limited Company
A public limited company (or PLC) is a company whose ownership is demarcated into equal parts by shares. It can sell, transfer or divide its shares among shareholders as per its share holding policy but not below 50% to any single shareholder. This company has a Board of Directors elected by shareholders, who are usually nominated from within and outside of the company depending on skillsets required at different times. A public limited company’s shares are traded on an open market, where they can be purchased or sold with ease and often afford greater liquidity than privately-held stocks. Being held accountable to shareholders may encourage management to make decisions that generate long-term growth for all involved.
Limited Liability Partnership (LLP)
In 2014, about 5% of Indian businesses were limited liability partnerships. These are business structures where a partner is liable for any debts incurred by their company, but these partners can only be sued if they had knowledge of wrongdoing within their company. LLPs are often a good way to start a new business because they require few formalities and come with little government regulation. However, they may not be as suitable for larger businesses with multiple partners or partners who live far apart. If you’re considering starting an LLP, it might be worth looking into how to register an LLP first (see below). While most partnerships can choose to become LLPs without having to go through an official registration process, we’ll detail that process here for completeness.
Association of Persons (AOP)
Also known as a club, an AOP is not a legal entity on its own. Instead, it is registered under the Section 25 of Indian Companies Act 2013 with one or more persons who act as members. Unlike other forms of business entities, AOPs are formed only for social purposes. However, they can be promoted for profit-making activities. As per law, no shareholder has any liability beyond his/her contribution to capital. This means that if your company fails, you don’t have to worry about creditors coming after your personal assets. But there are certain disadvantages too—for example, you will have to get permission from all shareholders every time you want to make a change in your company’s constitution (like changing its name). If any member disagrees with such changes, he/she can withdraw from the association at any time without assigning any reason. Moreover, if you wish to convert your AOP into another form of company (say a Private Limited Company), then you will have to get all existing members’ approval first—and if even one member objects then it won’t happen!
Non-Profit Organization (NPO)
NPOs are run by volunteers for a specific cause. These organizations can range from social work groups to professional societies to advocacy groups. They are not driven by profit, but rather by those working for them that have a common interest. NPOs are mostly funded through grants, donations, and membership fees. Examples of non-profit organizations include charity hospitals, museums, animal shelters, religious groups and social service agencies. The key benefit to running your business as an NPO is reduced tax liability on profits. In some cases, NPOs may be eligible for exemption from income taxes entirely.
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