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What are the types of Business Entities Available in India?
The following types of Business entitles are available in India :
Limited Liability Partnership, LLP in India
A law to allow "Limited Liability Partnership" (LLP) in India has been enacted by the Parliament of India recently.
Private Limited Company
Public Limited Company
In addition to the above legal entities, the following types of entities are available for foreign investors/foreign companies doing business in India:
Wholly owned Subsidiary Company
Joint Venture Company
What is a Private Limited Company?
A Private Limited Company is a company limited by shares in which there can be maximum 50 shareholders, no invitation can be made to the public for subscription of shares or debentures, cannot make or accept deposits from Public and there are restriction on the transfer of shares. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 2.
What is a Public Limited Company?
A Public Limited Company is a Company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 7.
What are the advantages of a Limited Company?
A limited company has following advantages :
Members' (the directors and shareholders) financial liability is limited to the amount of money they have paid for shares.
The management structure is clearly defined, which makes it easy to appoint, retire or remove directors.
If extra capital is needed, it can be raised by selling more shares privately.
It is simple to admit more members.
The death, bankruptcy or withdrawal of capital by one member does not affect the company's ability to trade.
The disposal of the whole or part of the business is easily arranged. High status.
What are the disadvantages of a Limited Company?
A limited company has following disadvantages :
Requirement to register the company with the registrar of companies and provide annual returns and audited statement of accounts. All details of the company are available for public inspection so there can be no secrecy. There are penalties for failing to make returns.
Can be more expensive to set up.
May need professional help to form.
As a director, you are treated as an employee and must pay tax.
The advantages of limited liability status are increasingly being undermined by banks, finance house, landlords and suppliers who require personal guarantees from the directors before they will do business.
What entity is best suited?
The choice of entity depends on circumstance of each case. Private Limited Company has lesser number of compliances requirements. Therefore, generally where there is no requirement of raising of finances through a public issue and the ownership is intended to be closely held by limited number of persons, Private Limited Company is the best choice.
What is the minimum paid-up capital of a Private Limited Company?
The minimum paid up capital at the time of incorporation of a private limited company has to be Indian Rupees 1,00,000 (about United States Dollars 2,250). There is no upper limit on having the authorized capital and the paid up capital. It can be increased any time, by payment of additional stamp duty and registration fee.
What is the difference between authorized capital and paid up capital?
The authorized capital is the capital limit authorized by the Registrar of Companies up to which the shares can be issued to the members / public, as the case may be. The paid up share capital is the paid portion of the capital subscribed by the shareholders.
What is the procedure in obtaining a name approval for the proposed Company?
An application in Form No. 1A needs to be filed with the Registrar of Companies (ROC) of the state in which the Registered Office of the proposed Company is to be situated. The application is required to be signed by one of the promoters. The details to be state in the said application are as follows:1. Four alternative names for the proposed company. (The name can be coined names from the objects of the proposed company or the names of the directors, etc. but should definitely be indicative of the main object of the company. Justification for the name needs to be specified along with the application)2. Names and addresses of the promoters (Minimum 7 for a public company while 2 for private company).3. Authorized Capital of the proposed company.4. Main objects of the proposed company.5. Names of other group companies. On submitting the application, the ROC scrutinizes the same and sends the approval / objections in about 10 days to the applicant. On fulfilling of the objections a formal letter of name approval is issued.
What is the Memorandum of Association (MOA) and the Articles of Association (AOA) of a company and what is the procedure in their regard?
On receipt of the name approval letter from the ROC the MOA and the AOA are required to be drafted. The MOA states the main, ancillary / subsidiary and other objects of the proposed company. The AOA contains the rules and procedures for the routine conduct of the proposed company. It also states the authorized share capital of the proposed company and the names of its first / permanent directors. After the MOA and AOA are required to be stamped.
A stamp duty is required to be paid on the MOA and on the AOA. The stamp duty depends on the authorized share capital.::
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