22,May 21

Types of Business Structures in India

An NRI contemplating to start a new business venture in India, may house the business in the following types of entities namely:

1. Sole Proprietorship- It’s the simplest form of business wherein the person who owns the business is personally liable for the debts of the business.

2. Partnership Firms- Refers to an organisation formed by two or more people who come together with a view to earn profits in an agreed ratio. The partners / members of the partnership firm are jointly and severally liable for the activities of the firm. Partnership firms are governed by the Indian Partnership Act 1932 and the registration of the firm is optional and at the discretion of the partners.

3. Limited Liability Partnership (‘LLP’) -An entity which gives the benefit of limited liability of a company and flexibility of a partnership i.e. it is a hybrid between a company and a partnership. The LLP is a separate legal entity from the partners and the liability of partners is limited to the contribution made to the partnership. This structure is governed by the LLP Act 2008.

4. Private Limited Company- It’s a closely held company meant for small businesses with two or more shareholders. The liability of members is limited to the respective amount of shares held by each of the members. They are required to comply with the provisions of the Companies Act 2013.

5. One Person Company (‘OPC’)- A Company with only one shareholder. It’s a separate legal entity distinguished from the promoter and can have its own assets and liabilities. The promoter is not personally liable to pay the debts unlike in the case of a sole proprietorship. OPCs are governed by the Companies Act 2013.

There are a number of factors governing the selection of a business structure which would need to be evaluated prior to opting for one. 

Disclaimer: The views / the analysis contained therein do not constitute a legal opinion and is not intended to be an advice. Readers of this document are advised to seek their own professional advice before taking any course of action or decision, based on this document.

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