Legal Entity
A legal entity is an individual, group, or organisation that holds legal rights and responsibilities, such as entering into contracts, making payments, and adhering to penalties.
These entities are formed under the regulations and laws set by the Government of India. The most common types of legal entities in India are governed by the Companies Act 2013.
Types of Legal Entities:
- Private Limited Company: A privately held entity, limiting the shareholders’ liability to their shares.
- Public Limited Company: A company that offers shares to the public and is listed on stock exchanges.
- Partnership: A business where two or more people share ownership, responsibilities, and profits.
- Sole Proprietorship: A business owned and operated by one individual, with no legal distinction between owner and business.
- Limited Liability Partnership (LLP): A hybrid structure combining elements of both a partnership and a company, limiting partners’ liabilities.
- One Person Company (OPC): A company owned and operated by a single person, with limited liability similar to a private limited company.
These entities differ in terms of their privileges and responsibilities, offering various legal and financial protections based on their structure.
Each legal entity plays a distinct role in contributing to the economy and business landscape in India.
Frequently Asked Questions (FAQ)
Q. What are the key differences in tax implications between various types of legal entities?
A. Tax implications vary based on the type of legal entity. Private limited companies face corporate tax, while sole proprietorships are taxed as individual income. Partnerships and LLPs are taxed on profits, and public limited companies may face different tax rates based on their public listing.
Q. How does the process of registering each type of legal entity differ?
A. Registration processes differ in complexity. Private limited companies require filing with the Ministry of Corporate Affairs, while sole proprietorships only need local registrations. Partnerships need a partnership deed, and LLPs require registration with the Registrar of Companies. The one-person company involves simpler procedures than a private limited company.
Q. What factors should a business consider when choosing the right type of legal entity in India?
A. Businesses should consider factors like liability protection, tax benefits, funding needs, and operational flexibility. Startups may prefer private limited companies for funding, while small businesses might opt for sole proprietorships or partnerships because of their simplicity.
