Types of business entities in India

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India is an emerging market with wide scope and opportunities for both Indian and foreign investors. The Government of India offers entrepreneurial friendly policies which makes invasion and growth of businesses in India easier.

Before starting a business it is very important for the entrepreneur to prepare a blueprint of his business. This blueprint is referred to as business plan which serves as a tool for planning. It is a formal written document which specifies the entrepreneurial vision, mission and strategy.

Every business plan must include the following:

  1. Cover page
  2. Table of contents
  3. Executive Summary
  4. Development and Production
  5. Resource Requirement
  6. Format and Presentation
  7. Writing and Editing
  8. Summary
There are various forms of business entities in India:

  • Private Ltd Company
  • Public Ltd Company
  • Unlimited Company
  • Sole proprietorship
  • Joint Hindu Family business
  • Partnership
  • Cooperatives
  • Limited Liability Partnership(LLP)
  • Liaison Office
  • Branch Office
  • Project Office
  • Subsidiary Company

Private Ltd Company



A private company has the following features:
  1. Restricts the right of the shareholders to transfer their shares.
  2. Has a minimum of 2 and maximum of 50 members.
  3. does not invite public to subscribe to its share capital
  4. Must have a minimum paid up capital of Rs. 1 lakh or such a higher amount which may be prescribed from time to time.

Public Ltd Company :



A public Ltd company has the following characteristics:
  1. It allows the shareholders to transfer their shares.
  2. Has a minimum of 7 members, and for maximum there is no limit.
  3. it invites the general public to subscribe to its shares
  4. Must have a minimum paid up capital of Rs 5 lakh or such a higher amount as may be prescribed from time to time.

Unlimited Company



Unlimited Company is a form of business organization under which the liability of all its members is unlimited. The personal assets of the members can be used to settle the debts. It can at any time re-register as a limited company under section 32 of the Companies Act.

Sole proprietorship



Sole proprietorship is a form of business entity where a single individual handles the entire business organization. He is the sole recipient of all profits and bearer of all loses. There is no separate law that governs sole proprietorship.

Joint Hindu Family



Joint Hindu Family is a form of business organization wherein the members of a family can only own and manage the business. It is governed by Hindu Law.

Partnership



Partnership is “the relation between persons who have agreed to share the profits of the business carried on by all or any one of them acting for all”. It is governed by the Indian Partnership Act 1932.

Co-operatives

Co-operatives is a form of voluntary organization, wherein the members work together for the promotion of the interests of its members. There is no restriction to the entry or exit of any member. It is governed by Cooperative Societies Act 1912.

Limited Liability Partnership

Under LLP (Limited Liability Partnership) the liability of at least one member is unlimited whereas rest all the other members have limited liability, limited to the extent of their contribution in the LLP. Unlike general partnership this kind of partnership does not get terminated by the death or insolvency of the limited partners. It is governed by Limited Liability Partnership Act of 2008.

Liaison Office
Liaison Office is a kind of representative office which is set up to understand the business and investment environment. It is barred from taking up any commercial/industrial/trading activity and its role is limited to aggregation of information and promotion of exports/imports. It has to maintain itself out of inward remittances received from the parent company.

Branch Office

Foreign companies which are into manufacturing and trading activities abroad are permitted to set up branch offices in India for various purposes like rendering of professional and consultancy services, export/import of goods etc. Branch offices are not permitted to carry out manufacturing activities on their own. RBI is the statutory body that grants permission to foreign companies for setting up branch offices in India.

Project Office

Foreign companies can set up temporary project offices in India for carrying out activities related to that specific project.

Subsidiary Company

In India the sectors where 100% foreign direct investment is permitted there foreign companies can set up wholly-owned subsidiary. The wholly-owned subsidiary can be either of the following business entities:

  • Private Ltd Company
  • Public Ltd Company
  • Unlimited Company
  • Sole Proprietorship

Choosing a form of business organization

Criteria Most beneficial Least beneficial
Cost of formation Sole Proprietorship Company
Ease of formation Sole proprietorship Company
Transfer of Ownership Public Ltd Company Partnership
Continuity Company Sole proprietorship
Regulations Sole Proprietorship Company
Flexibility Sole proprietorship Company
Availability of capital Company Sole proprietorship
Liability Company and LLP Sole proprietorship

Regulatory requirements and statutory bodies involved in starting a business

  • Companies Act 1956 - It is “an act to consolidate and amend the law relating to companies and certain other associations”. It regulates the formation, functioning, the winding up of the companies and also the relationship between the company, government and public.

  • Ministry of Corporate Affairs-It regulates the Companies Act 1956 and other allied acts.

    The ministry governs the following acts:

    1. The Partnership Act 1932
    2. The Chartered Accountants Act 1949
    3. Companies Fund Act 1951
    4. The Companies Act 1956
    5. The Chartered Secretaries Act 1980
    6. The Monopolies and Restrictive Trade Practices Act in 1969
    7. The Companies Amendment Act 2006

  • Office of Registrar of Companies - The responsibility of the Registrar of Companies is to register the companies for their respective states and Union Territories and ensuring that the companies abide to the legal requirements of the Companies Act.

  • Company Law Board

  • The Ministry of Environment and Forest -It is the major administrative entity for:

    1. Governing and ensuring environmental protection
    2. Designing the environmental policy framework in India
    3. Undertaking conservation and survey of flora, fauna, forest and wildlife

  • The Environment Protection Act- It is an all-inclusive legislation which affirms the Central Government to protect and improve environmental quality control and reduce pollution from all sources. Under the Act, the Central Government shall have the power to take all such actions which it considers necessary or appropriate for the purpose of protecting and improving the quality of environment and for abating environmental pollution.

  • RBI-It regulates and controls the monetary system of the country.

  • SEBI-It is a statutory body that controls the Indian capital market.