Types of Business Establishments in India

There are mainly six types of Form of Organizations in India, which are:

1. Company Form of Organization

It is one of the most sophisticated forms of business entities in India. Here, business assets are separated from personal assets. Every shareholder is just responsible for his share of the total capital. Companies need to maintain records of financial transactions, board meetings, and annual reports and so on.

A company consists of a group of shareholders and the total capital of the entity is made up of shares. These shares can be sold/transferred to another individual who then also becomes one of the owners of the company.

Company can be of three types:

i) Company limited by shares – A company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.

ii) Company limited by guarantee – A company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound-up.

iii) Unlimited company – A company not having any limit on the liability of its members.

2. Partnership

Partnership business entities are quite similar to sole proprietorship. The basic difference between partnership and sole proprietorship is that more than one individual is involved in a partnership. The roles, responsibilities and the share of each partner are specifically defined in a legal partnership agreement.
Any profit earned by the business is shared between partners according to the legal partnership agreement. In case there are losses, each of the partners is personally responsible. Personal assets of partners may be used to compensate the losses incurred, if any.

3. Limited Liability Partnership
With the concept introduced in 2009, a LLP functions as a structured business model. It is a separate legal entity from the partnership entity and business assets are separate from the personal assets of the partners. In case the business incurs losses, the personal assets of partners are not put at risk as the maximum liability of every partner is defined by his share capital in the entity.

Compared to Partnership and Sole Proprietorship, Limited Liability Companies always have better credibility among investors. The main reasons include proper maintenance of financial records, incorporation records and tax records.

4. Proprietorship

A business registered in the name of an individual is called Sole Proprietorship. A single person is completely responsible for the entire business with the business and the owner not being separate from each other. The owner funds the business, takes any profits and bears any losses.
It does not involve any complex rules or accounting. Personal assets and business assets are not separated from each other. Any profits from the business are just added to the business owner’s income for taxation purposes.
Similarly, any losses become the personal losses of a business owner. In case the business starts incurring losses and additional money is needed to compensate those losses, the personal assets of the owner itself are put at risk.

5. One Person Company
One Person Company (OPC) is a newly introduced type of company and was introduced in the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a OPC is that there can be only one member in a OPC, while a minimum of two members are required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership.
Similar to a Company, an OPC is a separate legal entity from its members, offers limited liability protection to its shareholders, has continuity of business and is easy to incorporate.

6. Section 8 Company
A Section 8 Company is an organization which is registered as a Non-Profit Organization (NPO). NPO/company has its objective of promotion of arts, commerce, charity, education, protection of environment, science, social welfare, sports, research, religion and intends to apply its profits, if any, or other income in promoting its objects. It functions exactly like a limited company including all the rights and obligations that come with such a company. However, it differs from a company in one very crucial aspect, i.e. it cannot use the words “Section 8” or “Limited” in its name.