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Monday, February 3, 2014

Different types of business entities you can open India

Want to Invest money, Welcome to India!
India is one of the fastest growing economies in the world.
Nowadays, many foreigners are investing their hard earned money in India. The reasons behind this move are as follows:
Many tax exemptions available to the company set up in Special Economic Zone;
India has got double taxation treaties with around 85 countries across the world.
Skilled and smart employees are available at reasonable cost.
Most common language used in India for working is ENGLISH. So, there is no language hurdle too.

The business entities that can be set up in India are:

1.       Sole Proprietorship
2.       Partnership firm
3.       Limited Liability Partnership
4.       Private Limited company
5.       Public Limited Company

Sole Proprietorship
It is the simplest business entity in India. It doesn’t need its own Permanent Account Number (PAN) and the PAN of the owner (Proprietor) acts as the PAN for the Sole Proprietorship firm. A Proprietor of such firm has unlimited business liability. This means that owner’s personal assets can be attached to meet business liability claims. It is not possible to transfer the ownership of a Sole Proprietorship from one person to another.

Partnership Firm
A partnership firm in India is governed by The Partnership Act, 1932. Two or more people can form a Partnership subject to maximum of 20 partners. A partnership deed is contains the amount of capital each partner will contribute to the partnership and profit sharing ratio of each partner.
A separate Permanent Account Number (PAN) is applied by a each firm. Partners of the firm have unlimited business liabilities which means their personal assets can be attached to meet business liability claims of the partnership firm. Also losses incurred due to act of one partner are liable for payment from every partner of the partnership firm.

Limited Liability Partnership
LLP is a new concept in business world. It is a combination of both company and partnership firm. The maximum liability of each partner in an LLP is limited to the extent of his/her investment in the firm.
An LLP carry its own Permanent Account Number (PAN). One of the benefits of LLP is that it provides protection to partners against illegal or unauthorized actions taken by other partners of the LLP.
Due to its flexible nature, it has become popular nowadays among the investors. A Private or Public Limited Company as well as Partnership Firms can be converted into a Limited Liability Partnership.

Private Limited Company
 A private company, in terms of section 3(1)(iii) of the Indian Companies Act 1956, means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles :
A Private limited company is a voluntary association of not less than two and not more than fifty members, whose liability is limited, the transfer of whose shares is limited to its members and who is not allowed to invite the general public to subscribe to its shares or debentures. 
It has an independent legal existence.  

Public Limited Company
A Public limited company is defined as per Section 3(1) (IV) of Indian Companies Act, 1956. According to this Section, a public limited company is that which has a minimum capital of 5 lakh rupees or higher if prescribed and is not a private company.
At least 7 persons are required to form a public company.
A private company which is subsidiary of a public company is also a public company.

In addition to the above entities, there are other types of entities available for foreign (international) & expatriate investors having business in India –
1.       Representative Office
2.       Project Office
3.       Branch Office
4.       Joint Venture Company
5.       Wholly Owned Subsidiary Company
Both the Indian promoters and the foreign promoters can form the above business entities.

Foreign Investors Establishing Business in India
Foreign investors desirous to incorporate in India are required to seek governmental approval before investing in India.

Approvals can be automatic (RBI Approvals), though application is required for those approvals. Or Special Permission (FIPB) could be obtained to invest over and above the regular percentage allowed. 

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