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BUSINESS ORGANIZATION

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Sole Proprietorship

Partnership

Private Limited Company

Public Limited Company

Charitable Organization

Types of Business Entities

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No registration required

Unlimited liability

Used for small business or by Professionals

No Separate Legal Entity

Sole Proprietorship

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Section 11 of Companies Act, 1956No partnership consisting of more than 20 persons shall be formed

Partnership

Indian Partnership Act, 1932

Section 4 Partnership is the relation between persons who have agreed

to share profits of business carried on by all or any of them acting for all Unlimited Liability

Registration not Compulsory

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PartnershipUnder the Income Tax Act 1961, the Partnership firm is taxed as aseparate entity, distinct from the partners.In the Act, there is no distinction between assessment of aregistered and unregistered firms. However, the partnership must

be evidenced by a partnership deed.The partnership deed is a blue print of the rights and liabilities ofpartners as to their capital, profit sharing ratio, drawings, intereston capital, commission, salary, etc, terms and conditions as toworking, functioning and dissolution of the partnership business.

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Governing Act Companies Act, 1956

Company

Special Features of Company

a) Company is a Separate Legal Entity

b) It can sue and be sued in its own namec) The liability of the shareholders are limited to the extent of

their shareholdingsd) Company is distinct from its shareholderse) It can hold property in its own name

f) Any Dividend Income received from an "Indian Company"is totally exempted from Income Tax under section 10(34) of Income tax Act and Income from Mutual funds isexempted under section 10(35)

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Types of Companies in IndiaDESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY

Definition Which by its article restricts:Numbers of members to 50Transfer of sharesCannot give Invitation to public

to subscribe its debenture, sharesetc.Acceptance of deposits from

person other than its shareholdersand directors

Which is not * private

Governing Laws Companies Act, 1956 Companies Act, 1956SEBI Act, 1992 and alliedlaws.

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Types of Companies in India DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY

IncorporationTime

2 to 3 weeks 2 to 3 weeks

Minimum Paid upCapital

INR 1,00,000/- INR 5,00,000/-

Maximum No. ofshareholders 50 (Fifty) No limit

Minimum No. ofShareholders

2 (Two) 7 (Seven)

Transferability of

Shares

Restricted Freely. If company is listed

then through stockexchange(s)

Minimum No. ofDirectors

2 3

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Types of Companies in India DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY

Whether aForeigner canbe Director

Yes Yes

Whole TimeDirector (WTD) /ManagingDirector (WTMD):Appointment

Appointment notcompulsory andNo restriction onappointment

Appointment :Not compulsory, Ifpaid up capital < Rs. 5 Cr.Compulsory. Ifpaid up capital => Rs.5 Crs

WTD / WTMD:

Remuneration

No restriction As per schedule XIII,

otherwise permission ofCentral Government .

Foreigner asWTM D / WTD

No restriction With the approval ofCentral Government

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Types of Companies in India DESCRIPTIONS PRIVATE COMPANY PUBLIC COMPANY

Loan toDirector etc.

Yes With the previousapproval of CentralGovernment

Contracts withDirector etc.

Yes With the consent of Board,If paid up capital of thecompany is (One) 1 Cr. ormore, approval of CentralGovt. is necessary

Loan, Investment

& Guarantee bythe company

No restriction Some restrictions

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Charitable Organization

- Trust

- Society

- Section 25 Company

It can do business and earn any amount of profits, but thedistribution of profits cannot be made to Shareholders /trustee

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Regulatory Bodies in India

Foreign Investment Promotion Board(FIPB)Reserve Bank of India (RBI)

Security Exchange Board of India (SEBI)Registrar of Companies (RoC)Trade Mark Registry (TMR)Director General of Foreign Trade (DGFT)

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How a Foreign Company can enterinto India?

Liaison OfficeBranch Office

Project / Site OfficeJoint Venture100 % Wholly Owned Subsidiary

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Liaison OfficePermitted activities for a Liaison Office in India

Representing in India the parent company/groupcompanies.Promoting export import from/to India.Promoting technical / financial collaborationsbetween parent / group companies and companiesin India.

Acting as a communication channel between theparent company and Indian companies .

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Procedure for setting up Liaison Office

Apply in Form FNC-1 in quadruplicate to RBIEnglish version of the certificate of incorporation /registration attested by Indian Embassy / Notary public inthe country of registration.Latest balance sheet of the applicant company / firm.

Certified photo-copy of the agency Agreement, if any, withparties in India.Photo-copy of the Agreement / draft- Agreement /correspondence indicating the terms of appointment of theproposed representative duly authenticated by the applicant.

Where applicable, certified photocopy of Government ofIndias approval for undertaking projects in India.Where applicable, certified photocopy of the contract /

Agreement for undertaking activities / rendering services.

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Liaison OfficeConditi ons Imposed While Granting Permission

No commission / fee will be charged or any otherremuneration received by the Indian office of the foreigncompany for its liaison activities in India.

Except the liaison work, the office will not undertake anyactivity of a trading, commercial or industrial naturewithout the prior permission of RBI

The entire expenses of the Indian office will be metexclusively by remittance from abroad through normalbanking channels.

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Branch OfficePermitted activities

Export/Import of goodsRendering professional or consultancy services.Carrying out research work, in which the parent company isengaged.

Promoting technical or financial collaborations between Indiancompanies and parent or overseas group company.Representing the parent company in India and acting asbuying/selling agent in India.Rendering services in Information Technology anddevelopment of software in India.Rendering technical support to the products supplied byparent/group companies.

Procedure for setting up Branch Office Same as Liaison Office

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Joint Ventures

Joint Ventures are of two types a) Incorporated Joint Venturesb) Contractual Joint Ventures

a) Financial Joint Ventureb) Technical Joint Venture

Essentials for Joint Ventures- Name of the JV- Shareholding Pattern- Funding and Financing of JV- Constitution of Board of Directors, Powers of Directors, Meeting- Transfer of shares, right of refusal, buy out provisions- Non disclosure, non competition, IPRs - Governing laws, Dispute resolution

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Joint Ventures

Verify Limit of FDI permitted inproposed JV

Drafting of MoA & AoA in accordancewith JV AgreementIncorporation of JV company

Private & Public JV Company

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100% Wholly Owned Subsidiary

Verify FDI for 100% WOS

Incorporation of WOS

Private & Public WOS