Types of Business

Entities
Presented by:
Ankisha Bansal
 Sole Proprietorship
Partnership
The legal Limited Liability Partnership
forms of Private Limited Company
business Public Limited Company
One Person Company
Unlimited Company
 A person wanting to set up a business has to consider
what legal form organisation should take.
Factors influencing this decision are:
How many owners the business is going to have?
What is the tax position of the business?
Introduction Can the owner take the risk of unlimited ability?
Does the owner want all the business profits?
Is there a complete privacy in the affairs of the
business for the owner?
In the case of the owners illness or death what will
happen to the business?
 Sole trader is a person who owns and operates
their own business. They may or may not
employ other people.
Sole It is important to remember that a sole trader is
Trader usually a relatively small business with little
capital available for expansion and the capital
that has been invested comes from one source
and that is the owner.
 Profits - they are kept by the owner. There are no other
shareholders so the profits don't have to be split.
Easy to run - every business is difficult to run successfully
but sole trader is the easiest form of business
Easy to establish - hardly any complicated forms or
procedures. Some of the other legal forms have to have
legal forms completed before the business can start.
Advantage Total control - the owner is in charge of the business.
of He/she does not need to discuss their decisions with any
other owners. They have total control of the business.
Sole Trader Privacy - As there are no shareholders in the business you
only need to inform Inland Revenue and Customs and
Excise in order for them to see how well the sole
proprietor is doing.
Flexibility - very flexible working hours as sole trader is its
own boss e.g. Rather than working on Friday he/she
decides to work on Sunday instead.
 Illness - If ill the business might be forced to shut down
stopping the income and profits
Unlimited liability - if the things dont work out as planned
the sole proprietor could lose all its investment.
Lack of continuity - because the owner is the business
there is no guarantee that the business will carry on
Disadvanta running once the owner decided to stop.
ges of Long hours - long hours may be required of the owner to
keep the business afloat.
Sole Trader Difficulty in raising capital - small businesses find it hard to
find a start up capital and usually the owner might have to
put his/her house as an insurance for capital borrowed.
Limited specialisation - as the owner has to be a
purchaser, lorry driver and accountant there is no time for
this person to specialise in all fields
 Partnership is a type of business
where two or more people agree to
own, run and trade. Partnerships
Partnership require a high degree of trust and are
very common in fields such as
medicine.
 When setting up a business a person has to
decide whether to set up a business on their
own or with others.
This will depend on:
Partnership how much control they want over the
business
are they prepared to share the profit
can they raise necessary capital to start up
the business by themselves
 easy to set up
profits belong to the partners
privacy. Only tax authorities need to be told
Advantages how much partners are earning and profit of
the business
of often good relations between partners
Partnership raising capital for the business is easier than
that of sole proprietor
different expertise for partners e.g. 1
specialises in accountancy whilst the other in
marketing
 Disagreements between partners, which can
Disadvanta be bad for business
Some partnerships dont have a deed of
ges of partnership, which can lead to problems
Partnership among the partners later on
most partnerships are relatively small
businesses e.g. Shops, farms
 A limited liability partnership is a special
business structure that provides protection
Limited for individual partners against the
Liability negligence of other partners within the
organization. A limited liability partnership
Partnership has advantages as well as potential
disadvantages.
 Liability Protection
Each partner is personally responsible for the dealings
of the company including debts, liabilities and any
wrongful acts of the other partners. The liability
protection that comes with a LLP is a big advantage.
Tax Advantages
The individuals in the partnership are liable for filing
Advantages their personal income taxes as well as self employment
taxes for the Internal Revenue Service. The partnership
of LLP is not held responsible for paying these taxes.
Flexibility
Partners have flexibility within business ownership
under a limited liability partnership. Each partner has
the decision to say how they will contribute to the
operations of the business. Duties are either divided
equally or based on the experience of the individual.
 Special Tax Considerations
For tax purposes a LLP is recognized in some states as a
non-partnership. This could impact the partners who
require special tax considerations.
Partners Not Consulting
The individual partners do not have to consult with each
other over certain business arrangements. Even though
Disadvanta the general partners still have liability over the business,
they do not have to consult with the other partners, this
ges of LLP can cause dissention among the partners.
Death of a Partner
The limited liability partnerships are automatically
dissolved upon the death of a partner. Even if there are
steps taken to ensure that the company will continue
beyond the demise of the partners, the LLP will not
continue. The surviving partners can opt to re-establish a
LLP but this will need to be done after each partner dies.
 A corporation is a legally defined type of
business in which the business itself is
considered a person under the law, and is
Corporation liable for the businesses debts. This relieves
the corporations owners of much of their
own personal liability.
 Limited liability. The shareholders of a corporation are
only liable up to the amount of their investments. The
corporate entity shields them from any further
liability.

Advantages Source of capital. A publicly-held corporation in

particular can raise substantial amounts by selling
of shares or issuing bonds.
Ownership transfers. It is not especially difficult for a
Corporation shareholder to sell shares in a corporation, though
this is more difficult when the entity is privately-held.
Perpetual life. There is no limit to the life of a
corporation, since ownership of it can pass through
many generations of investors.
 Double taxation. Depending on the type of
corporation, it may pay taxes on its income, after
which shareholders pay taxes on any dividends
received, so income can be taxed twice.
Disadvanta Excessive tax filings. Depending on the type of
corporation, the various types of income and other
ges of taxes that must be paid can add up to a substantial
amount of paperwork.
Corporation Independent management. If there are many
investors having no clear majority interest, the
management team of a corporation can operate the
business without any real oversight from the owners.
 TYPE SOLE PROPRIETORSHIP CORPORATION

A legal entity separate from it's

An individual doing his own business
members
Structure
Must be formed in writing, through a
No need to be formed in writing
Memorandum and Articles of Association.
Formation

Must be registered under the Must be registered with the SSM under
Registration of Business Act 1956 the Companies Act 1956
Difference: Registration

Membership No maximum number, unless it is a

Sole
There is only one person.
private company (50 members)

Proprietorsh Management The sole proprietor owns and

manages the business himself
Company members are not its managers
(directors) or agents

ip and Limited in borrowing, only for the

purpose of its objective as stated in its

Corporation Borrowing power

Unrestricted borrowing powers Memorandum of Association

Unlimited liability for the business

Company members are not liable for the
debts
Liability company's debts once they hold fully paid
company shares.

There must be a formal procedure,

Can be dissolved informally winding up and liquidation, in dissolving
Dissolution the company
 BASIS FOR COMPARISON PARTNERSHIP FIRM CORPORATION

Governing Act Indian Partnership Act, 1932 Indian Companies Act, 1956

Partnership firm is created by The company is created by

How it is created? mutual agreement between the incorporation under the Companies
partners. Act.

Registration Voluntary Obligatory

Minimum number of Two in case of private company and

Two
persons Seven in case of public company.

Difference: Maximum number of

persons
100 partners
50 in case of a private company and a
public company can have unlimited
number of members.
Partnership Management of the
concern
Partners itself. Directors

and Liability Unlimited Limited

Corporation Contractual capacity

A partnership firm cannot enter
into contracts in its own name
A company can sue and be sued in its
own name.

1 lakh in case of private company and

Minimum capital No such requirement
5 lakhs in case of public company.

Must use the word 'limited' or 'private

Use of word limited No such requirement.
limited' as the case may be.

Legal formalities in
No Yes
dissolution / winding up

Separate legal entity No Yes

 PARTICULAR COMPANY LIMITED LIABILITY PARTNERSHIP

Governing Law Companies Act, 1956 and various The Limited Liability Partnership Act,
Rules made thereunder 2008 and various Rules made
thereunder
Separate Legal It is separate legal entity, separate It is separate legal entity, separate from
Entity from its member, directors. its partners\ designated partners.
Common Seal It denotes the signature of the It denotes the signature of the Company
Company and every company shall and LLP may have its own common seal,
have its own common seal. if it decides to have one.

Name Suffix Limited or Private Limited has Suffix LLP or Limited Liability
to be added to the name Partnership has to be added to the

Difference:
name.
Change of name The name of the company can be The name of the LLP can be changed
changed with the prior approval of with the prior approval of Central

LLP and
Central Government. Government.

Ownership of The company has ownership of assets The LLP has ownership of assets
Assets and members only have shares in the andPartners only have capital
Corporation Liability
company contributionin the LLP

Liability of members is only limited to Liability of partners is limited upto their

the shares held by them. capital contribution
Minimum Minimum two for private Minimum two partners
Number of Companyand minimum seven for
Member public company as per the Companies
Act, 1956

Maximum Maximum 50 in case of Private No cap of maximum number of its

number of Company and no cap of maximum partners
Member number of Member in Public Company
as per the Companies Act, 1956
Thank
You