Difference between Business Formations

 

This article will provide you with the difference between business formations. If you want to start a new business and you are not able to pick one form then here is a glance of differences between various forms. There are few forms prevailing in India such as proprietorship, partnership, One Person Company, limited liability partnership and Pvt Ltd company. The difference between them on various bases is mentioned below:

  1. Registration

Proprietorship Sole Proprietorship registration is not compulsory. There is no procedure for any formal registration process as per the provisions of the act.

Partnership– Under the Indian partnership act of 1932 partnership registration is optional. It is better to get your partnership register to enjoy various exemptions.

LLPLLP has to get registered under the ministry of corporate affairs. The limited liability partnership act of 2008 governs its provisions and rules and regulations.

Private limited company– Every company is governed by Indian Companies’ act of 2013. This company registration has to be done under the ministry of corporate affairs.

One person company– As One Person Company is also a company so it is also governed under Companies act of 2013 and registered under the ministry of corporate affairs.

  1. Legal status of entity

Proprietorship– It is not considered as a separate legal entity. It is started by one person only.

Partnership– Under the partnership act of 2013 partnership firms are not considered as a separate legal entity. It is not distinct from its owner.

LLP– LLP registration is considered as a separate legal entity from its owner.

Private limited company– Companies which are governed under companies act of 2013 are considered to have a separate legal entity which is distinct from its owners.

One person company– OPC is also considered as a separate legal entity.

  1. Members liability

Proprietorship– Sole proprietor has unlimited liability which means that personal assets of the member can also be used for paying off the debts of the company.

Partnership– In partnership liability of its members is unlimited. The partners are also liable to pay the debts of the company using their own personal assets.

LLP– As the name suggest limited liability partnership, the liability of its members is limited. They don’t have to pay from their personal assets.

Private limited company– The liability of Pvt Limited company is limited to the extent of share capital contributed by them.

OPC– Partner of one Person Company is limited to the extent of share capital contributed or invested by them.

  1. Minimum number of member

Proprietorship– Minimum number of partners to form a sole proprietorship is one. A single person owns and manages the affairs of the company.

Partnership– To form a partnership firm at least 2 persons are required with the common objective to earn a profit.

LLP– To form a limited liability partnership minimum number of 2 persons are required.

Private limited company– Under the provisions of the companies act 2013, a minimum number of 2 persons are required to form a private limited company.

OPC– Minimum number of 1 person is required to form a one person company.

  1. Maximum number of members

Proprietorship– It is formed by a single owner and can have maximum 1 person only.

Partnership– Maximum number of members in case of the banking sector is 10 and in the case of any other, it can be 20.

LLP– Maximum number of members in LLP can be unlimited. There is no restriction on the maximum limit of the members.

Private limited company– Maximum number of members which a Pvt Ltd company can have is 200.

OPC– Maximum number can be 2 in the case of One Person Company.

  1. Foreign ownership

Proprietorship– Foreign ownership is not allowed.

Partnership– As per the partnership act 1932, foreign ownership is not allowed.

LLP– In LLP foreign ownership can be allowed but with due permission from reserve bank of India and foreign investment department.

Private limited company– Foreign ownership can be allowed.

OPC– As there are only 2 persons in One Person Company, one is the director and other is the nominee. Both the director and the nominee cannot be foreign citizens.

  1. Transferability

Proprietorship– Transferability is not allowed in a sole proprietorship.

Partnership– In partnership also transferability is not allowed as per the provisions.

LLP– In limited liability partnership ownership can be transferred to others.

The private limited company– Privately owned company can transfer its ownership to others.

OPC– One Person Company also allows transfer of ownership.

  1. Survival

Proprietorship– As there is the only single owner so this form comes to end on death, the retirement of the member.

Partnership– Partnership also comes to end with the death of its anyone member. However, if the remaining partners want to carry on the business they can come into a new agreement of partnership.

LLP– Existence independent on partners.

Private limited company– Men may come, Men may go but the life of the company will go on forever. It means that life of the company is not affected by death or retirement of its members.

OPC– Existence is independent on directors or nominee.

  1. Taxation

Proprietorship– It is taxed as an individual.

Partnership– Tax rate is 30% on the company’s profit.

LLP– Tax rate is 30% on profits plus cess and surcharge.

Private limited company– The tax rate of Pvt Ltd company is 30% on profit plus cess and surcharge.

OPC– The tax rate of One Person Company is also 30% plus the amount of surcharge and cess.

  1. Annual filings

Proprietorship– sole proprietorship is required to file its income tax returns with the registrar of the company.

Partnership– In the case of the partnership, only income tax return is filed with the registrar of the company as per the provisions of partnership act 1932.

LLP– For LLP annual filing Income tax return and annual statement of accounts are required to be filed with the registrar of the company.

Private limited company– Income tax return and annual statement of accounts and return are required to be filed with the registrar of the company.

OPC– One Person Company is also required to file its income tax return and annual statement of accounts with the registrar.