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Types of Business Entities in India Before you can decide how you want to structure your business, you'll

need to know what your options are. Here's a brief rundown on the most common ways to organize a business:

sole proprietorship partnership limited partnership limited liability company (LL ! corporation (for"profit! nonprofit corporation (not"for"profit!, and cooperati#e.

Sole Proprietorships and Partnerships $or many new businesses, the best initial ownership structure is either a sole proprietorship or "" if more than one owner is in#ol#ed "" a partnership. Sole Proprietorships % sole proprietorship is a one"person business that is not registered with the state like a limited liability company (LL ! or corporation. &ou don't ha#e to do anything special or file any papers to set up a sole proprietorship "" you create one 'ust by going into business for yourself. Legally, a sole proprietorship is inseparable from its owner "" the business and the owner are one and the same. (his means the owner of the business reports business income and losses on his or her personal ta) return and is personally liable for any business"related obligations, such as debts or court 'udgments. Partnerships *imilarly, a partnership is simply a business owned by two or more people that hasn't filed papers to become a corporation or a limited liability company (LL !. &ou don't ha#e to file any paperwork to form a partnership "" the arrangement begins as soon as you start a business with another person. %s in a sole proprietorship, the partnership's owners pay ta)es on their shares of the business income on their personal ta) returns and they are each personally liable for the entire amount of any business debts and claims. *ole proprietorships and partnerships make sense in a business where personal liability isn't a big worry "" for e)ample, a small ser#ice business in which you are unlikely to be sued and for which you won't be borrowing much money for in#entory or other costs. (o learn more about starting and running a sole proprietorship or partnership, read +olo's articles on each topic.

Limited Partnerships Limited partnerships are costly and complicated to set up and run, and are not recommended for the a#erage small business owner. Limited partnerships are usually created by one person or company (the ,general partner,!, who will solicit in#estments from others (the ,limited partners,!. (he general partner controls the limited partnership's day"to"day operations and is personally liable for business debts (unless the general partner is a corporation or an LL !. Limited partners ha#e minimal control o#er daily business decisions or operations and, in return, they are not personally liable for business debts or claims. onsult a limited partnership e)pert if you're interested in creating this type of business. Corporations and LLCs $orming and operating an LL or a corporation is a bit more complicated and costly, but well worth the trouble for some small businesses. (he main benefit of an LL or a corporation is that these structures limit the owners' personal liability for business debts and court 'udgments against the business. -hat sets the corporation apart from all other types of businesses is that a corporation is an independent legal and ta) entity, separate from the people who own, control and manage it. Because of this separate status, the owners of a corporation don't use their personal ta) returns to pay ta) on corporate profits "" the corporation itself pays these ta)es. .wners pay personal income ta) only on money they draw from the corporation in the form of salaries, bonuses, and the like. Like corporations, LL s pro#ide limited personal liability for business debts and claims. But when it comes to ta)es, LL s are more like partnerships: the owners of an LL pay ta)es on their shares of the business income on their personal ta) returns. orporations and LL s make sense for business owners who either (/! run a risk of being sued by customers or of piling up a lot of business debts, or (0! ha#e substantial personal assets they want to protect from business creditors. (o learn more about forming an LL or a corporation, see +olo's articles on each topic. Nonprofit Corporations % nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. % nonprofit can raise much"needed funds by soliciting public and pri#ate grant money and donations from indi#iduals and companies. (he federal and state go#ernments do not generally ta) nonprofit corporations on money they take in that is related to their nonprofit purpose, because of the benefits they contribute to society. (o learn more about nonprofit corporations, see +onprofit Basics. Cooperatives *ome people dream of forming a business of true e1uals "" an organization owned and operated democratically by its members. (hese grassroots business organizers often refer to their businesses as a ,group,, ,collecti#e,, or ,co"op, "" but these are often informal rather than legal labels. $or e)ample, a consumer co"op could be formed to run a food store, a bookstore, or any other retail business. .r a workers' co"op could be created to manufacture and sell arts and crafts. 2ost states do ha#e specific laws dealing with the set"up of cooperati#es, and in some states you can file paperwork with the secretary of state's office to ha#e your cooperati#e formally recognized by the state. heck with your secretary of state's office for more information.

INTRODUCTION 3artnership is the relationship between persons who ha#e agreed to share the profits of a business that is carried on by one of them or all of them as per *ir $redrick 3ollock. (he 4nglish 3artnership %ct, /567 defines partnership as the relation subsisting between persons carrying on business in common with a #iew to profits. 8ndian 3artnership %ct is one of #ery old mercantile law. 8n /690, the chapter :8 of the 8ndian ontract %ct, /5;0 ( hapter 8: < sections 096 to 0==!, was repealed and the 8ndian 3artnership %ct came into e)istence. (he %ct came into force on the /st day of .ctober /690. (he %ct is not applicable to >ammu and ?ashmir. (he 83% was passed to define and amend the law relating to partnership. But it is not e)hausti#e on the topic of partnership as admitted in the Se tion ! of the %ct. (here is nothing in the %ct that implies that the %ct should be gi#en a retrospecti#e effect. @ ontract, including partnership contractA is a @concurrent sub'ect, co#ered in 4ntry ; of List 888 (*e#enth *chedule to onstitution!. (he 83%, /690 is a entral %ct, but *tate Bo#ernment can also pass legislation on this issue. 3ro#isions regarding registration of firms and related matters are e)clusi#ely looked after by *tate Bo#ernment as pro#ided in the %ct itself. Se tion " of the 83% defines persons who ha#e entered into a partnership with one another indi#idually as partners, collecti#ely as a firm and the name under which their business is carried as the firm name. ESSENTI#LS O$ P#RTNERS%IP /. 3artnership is an association of two or more persons.

0. 3artnership is the result of agreement between two or more people. (he agreement must fulfill all the re1uirements of a #alid contract. 8t is not a relationship that arises out of a status. $or e)ample, a Hindu >oint $amily firm is not a partnership because the element of agreement is missing 9.(he agreement must be to carry on some business. (he term has to be taken in a practical sense. (he business may be permanent or temporary. Howe#er, o"owners and promoters of a company cannot be called partners. *ection 0(b! of the 83% says that @BusinessA includes e#ery trade, occupation and business. (hus, a partnership does not e)ist between members of a religious association and the like. $E#TURES O$ P#RTNERS%IP /. % partnership does not re1uire propertyC ser#ices rendered 'ointly will also constitute a partnership. $or e)ample, if two or more ad#ocates work on the same case as partners and share the fees or profits, a partnership is said to e)ist.

0. 3artnership is not a product of status like the 'oint stock companies. 8t doesnAt arise by operation of law like co"ownership and it doesnAt arise by mere 'oint ac1uisition of property. 9. 3artnership can arise out of a contract only and not from status as per *ection D of the 8ndian 3artnership %ct. (here is no upper limit on number of members in apartnership as per the %ct though minimum two persons are re1uired for a partnership. Howe#er, *ection // of the ompanies %ct, /6D= put the limit of /7 persons in case of banking business and 07 in others. E. (he agreement of partnership has to fulfil all essentials of a #alid contract. $or e)ample, there should be free consent, competency of the parties, lawful consideration and ob'ect. (he agreement need not be in writing e)cept where re1uired under the 8ncome (a) %ct or if the partners wish to get the firm registered. D. % person may become partner in particular ad#entures or undertakings as per *ection 5 of the 83%. But a partnership does not e)ist between the members of a charitable society or religious association or a building scheme. %s per CALDICOTT vs. GRIFFITHS (1853), a club is not a partnership. =. (he agreement must be to share profits of the business, trade or undertaking. Fnless otherwise so agreed, sharing of profits also in#ol#es sharing of losses. 2ere share in the profits of the business does not necessarily make a person a partner. % ser#ant or agent who recei#es a share of profits as his remuneration or the seller of good will of a business who is gi#en a share of profits as consideration for sale of the good will, are +.(, by reason of such facts alone partners. %s held in COX vs. HICKMAN, it was held that sharing of profits is only an apparent or prima facie test. -here a person is responsible only to his clients, not supposed to share losses or ha#e freedom of choice in core areas of the business like commissions, discounts or maintenance, such association can not be called partnership. ontribution of capital is not essential to become partner of a firm. ;. Business must be carried on by all partners or any of them acting for all. 4)pressly made clear in *ection /5, 3artnership includes the principle of 2F(F%L %B4+ &, e#ery partner assumes a dual role < that of a principal and of an agent. 8t is said that the foundation of the law of partnership is agency, and thus, the law of partnership is a branch of the law of the principal and the agent. 4#ery partner is an agent whose acts will be binding on the other partners who are his principals and each partner is again a principal who is in turn bound by the acts of others. 5. 3artnership is a specific application of the principles of agency. (he law of partnership is undoubtedly, a branch of the law of the principal and agent. 4#ery partner is an agent and principal, both, for other partner(s! in the firm. He is entitled to profits and responsible for obligations. *ub'ect to limitations under *ection 07 of the %ct, one partner can always bind the other partner(s! in any matter that falls within the scope of partnership. 6. 8t is not necessary that all the partners must be acti#ely participate in the conduct of the business. But a retired partner is not a partner. His annuity is mere recognition of past ser#ices. /7. $ormal or written agreement is not necessary. %n agreement to create the partnership can rise from the conduct of the parties too. (he deed of partnership is not needed as per law but an instrument of partnership is of great assistance in income ta) assessment. //. $irm is not a 'uristic person but it is assessed under the 8( %ct. /0. (he #alidity of a partnership firm does not depend upon the capital contribution by partners. /9. (he word @partnershipA is deri#ed from the term @to partA that means to di#ide. %nd the di#ision of profits is an essential condition of the e)istence of a partnership. But after COX s.v HICKMAN, the conclusi#e

test for partnership was held to be mutual agency as e#ery man who gets the profits might not be a partner and therefore not liable. /E. *ection /76 of the 8ndian 4#idence %ct pro#ides that the burden of proof lies on the person who claims that he or another is a partner. %s per Se tion &'a() an act of the firm means any act or omission by all the partners or by any partner or agent of the firm that gi#es rise to a right enforceable by or against the firm.