Forms of business enterprise

Transcription

1 G Forms of business enterprise

2 Doing business in India 115 Did you know! Available international comparisons show that India has the second-largest number of telephone subscribers in the world (among 222 countries). Mobile tariffs in India are the secondlowest in the world after Bangladesh. G.1 Sole proprietorship G.2 Partnerships G.3 Limited Liability Partnership

3 116 Doing business in India G.1 Sole proprietorship Sole proprietorship is the oldest and most common form of business. It is a one-man organization where a single individual owns, manages and controls the whole business. Sole proprietorship has the following features: There is ease of formation because it does not require elaborate legal formalities. There is no formal agreement required since it is a one-man show. In addition, it is not necessary to register such a The owner has complete control over all the aspects of the business and takes all the decisions although he/she may hire employees/ support staff for assistance in day-to-day activities. There is no legal existence separate from the owner of the business. The liability of the proprietor is unlimited, i.e., it extends beyond the capital invested. A non-resident Indian (NRI) or a person of Indian origin (PIO) residing outside India are allowed to do business in India through a sole proprietorship concern. The investment should be made on non repatriation basis subject to satisfying certain other conditions. However, an NRI or PIO cannot invest in a proprietary concern, which is engaged in any agricultural/plantation, real estate business or print media sector even for non-repatriation basis. Further, the investment can be made either by inward remittance or out of NRE or FCNR (B) account maintained with the authorized dealers or authorized banks.

4 Doing business in India 117 obtaining approval from the RBI. A person resident outside India other than NRIs or PIOs can make investment in sole proprietorship concerns after obtaining approval from the RBI. Alternate minimum tax is applicable to sole proprietorship from FY13, i.e., assessment year G.2 Partnerships or any of them acting for all. The owners of a partnership business features include the following: A partnership is easy to form as no cumbersome legal formalities are required registration is also not essential. However, if the The minimum number of partners in a partnership must be 2, while the maximum number can be 10 in the case of the banking regulatory approvals are likely to be required for partnerships engaged in banking operations. and the partners are one in the eyes of the law. In the absence of any agreement to the contrary, all the partners have a right to participate in the activities of the business. Ownership of property usually carries with it the right of management. Every partner, therefore, has a right to share in the management of the business.

5 118 Doing business in India The liability of the partners is unlimited. Legally, the partners are said to be jointly and severally liable for the liabilities of the from the personal property of the individual partners. There are restrictions on transfer of interest, i.e., none of the person (except to the existing partners) without the unanimous consent of all the partners. dissolved on the retirement, bankruptcy or death of any partner or in the event one of the partners becomes insane. An NRI or a PIO residing outside India is allowed to invest in a repatriable basis subject to satisfying certain other conditions. However, an NRI or a PIO cannot invest in a partnership concern, which is engaged in any agricultural/plantation, real estate business or print media sector. A person resident outside India, other NRIs or PIOs, can make RBI. FY13, i.e., assessment year

6 Doing business in India 119 G.3 Limited Liability Partnership (LLP) internal management on the basis of a mutual agreement. LLP is a body corporate and legal entity, which has perpetual succession and is separate from its partners. The liability of the partners is limited to their agreed contribution to the LLP. 100% FDI is permitted in LLP with prior approval of FIPB in sectors where 100% FDI is allowed under the automatic route. However, foreign institutional investors/foreign venture capital investors are not permitted to invest in LLPs. Capital contribution by partner in a LLP should only be in the form of cash. Further, LLPs are not permitted to avail ECBs. LLPs with FDI are not eligible to make any downstream investments. Indian companies with FDI are permitted to make downstream investment in LLPs only if both the Indian company and the LLP operate in sectors where 100% FDI is permitted under the automatic route and no FDI-linked conditions are attached. Conversion of company with FDI into LLP is permitted only on prior approval of FIPB/GoI. Taxation of LLP is similar to taxation of general partnership Remuneration of individual working partners and interest payment to partners are tax deductible within prescribed limits, subject to conditions.