What are the type of Business Entities Available in India?

The following types of Business entitles are available in India:

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Private Limited Company Public Limited Company Unlimited Company Partnership Sole Proprietorship

Overall I would say, When you are just starting your venture, go for a partnership firm. Once you see a certain level of stability/growth and you need credibility in the market, go for a company incorporation. In B2B deals especially, I have seen the customers being worried if you are not a registered company. Note: No VC would invest in a partnership firm (No one wants to take unlimited liability). You will anyway have to form a company before your first investment. In India, a private limited company incorporation, with an authorized capital of Rs 1 lac, will cost you about Rs 15k + the CS professional fee, which varies between 5k-10k. The whole process takes 2-4 weeks. The Rs 15k here includes Rs 4.8k, which you pay as a tax/duty for the authorized capital of Rs 1 lac. Rs 1 lac is the minimum authorized capital you need to commit to incorporate the company. It also includes the charges for DIN, Digital Signatures and all the paper work, which is mentioned below in details.

Here I am going to mention the difference between a private limited company and a partnership firm, their advantages and disadvantages and which one you should go for. The difference between the two: Entity: A company has a legal entity, separate from its shareholders or also called members. Members represent the company. Creditors and Debtors of the company are of the company alone and they cant proceed against the members personally.

A partnership firm has no legal entity separate from the members. It dies upon the death of a partner or upon separation between them. Partners are responsible for each and every debt or credit directly. Liability: In a company, the shareholders have a limited liability (Thats why it is called private limited or public limited). Individually, all the share-holders have the liability to the extent of the amount of the shares held by them for which they havent yet paid for. So once you have paid up the price for the shares to the company, your liability is over. You are not bound to pay anything towards the debts, which the company has incurred. In a partnership form each partner has an unlimited liability and is personally liable for all the debts of the firm. Registration and Legal Formalities: There are many legal formalities in case of a company which are on-going too. For example, The external auditing of the accounts of a company is a legal necessity, but in case of a firm until the annual turn-over doesnt cross 40 lacs, audit is not necessary. Management and Control: All the partners of a firm are entitled to take part in the management. But in case of a company the board of directors, elected by shareholders, control and manage the business. Every shareholder doesnt have to worry about the management of the company. Only majority voting power (>50%) is needed to control the most operations of a company (in a few very important cases >75% is required). While in case of a firm, consent of all partners is required to carry out any important decisions etc. Winding up: A partnership firm can be wound up at any time by any partner if it is at will, without any legal formalities. Winding up a company is a long and painful legal process. Remember that a company is a legal entity. So when law gives birth to a company, only law can kill it. So, here are some of the advantages and disadvantages of incorporating a company versus a partnership firm.

Advantages of Incorporation: 1. Separate legal entity and Limited liability, as described above. 2. Ease of operations, because not every member is required to run the company. 3. Adds credibility to your existence. Disadvantages of Incorporation: 1. Formality and expenses, throughout its life. 2. Painful to wind-up, if required.