Accountancy in India

>> Choice of Legal Form in India

Incorporated forms

Limited liability partnership

Limited Liability Partnership is governed by the provisions of the Limited Liability Partnership Act 2008.

Limited Liability Partnership (LLP) is a new corporate structure that combines the flexibility of a partnership and the advantages of limited liability at a low compliance cost. It is an alternative corporate business vehicle that provides the benefits of limited liability, but allows its members the flexibility of organising their internal management based on a mutually arrived at agreement, as is the case in a partnership firm.

Limited liability company

Companies may be limited by:

  1. Shares – liability of the shareholders is

limited to the amount unpaid on their shares;

  1. Guarantee – liability of the shareholders

is limited to the amount guaranteed which may or may not have  share capital

The most commonly used form in India is a company limited by shares.

Companies may be incorporated as private companies or public companies. A private company may also be incorporated as a one-person company.

A company may be a listed company (whose securities are listed on a recognized stock exchange in India),  or unlisted.

Private company

Incorporated entities in India are governed by the provisions of the Companies Act.

A Private Company has the following features:

  • Minimum number of members – 2; Maximum – 200.
  • Restricts transferability of shares.
  • Prohibits invitation or acceptance of deposits from the public other than the directors or their relatives.
  • Prohibits any invitation to the public to subscribe for any shares in or debentures of the company.
  • No minimum capital requirements

A private company is required to have 2 directors.

Public limited company

A public limited company does not need to satisfy any minimum paid-up share capital requirements. It is defined as a company which is not a private company.

A public limited company shall have a minimum of 7 members and three directors. A public company can be wholly owned or a joint venture.

A private company, which is a subsidiary of a public company, is also considered to be a public company.

A public limited company may also list its shares on a recognized stock exchange  by way of an IPO. Every listed company shall maintain public shareholding of at least 25%.

One-person company

One-person companies shall have only one member and, unless otherwise expressly excluded, all the provisions related to a private company shall apply to a OPC.

Salient features of a one-person company:

  • can be limited by shares or Guarantee
  • limited by shares shall have a minimum paid up share capital of 0.1 million INR
  • the legal name of an OPC shall be followed by the words “One Person Company”, wherever affixed.

Unincorporated forms

Sole proprietorship

This is the simplest form of business. No formal business registration is required under Indian law. However, the sole proprietor may be required to obtain a license specific to the line of business. The owner of a sole proprietorship is personally entitled to all the profits and responsible for all the losses arising from the business.

General partnership

The Indian Partnership Act, 1932 is an act enacted by the Parliament of India to regulate partnership firms in India.

The main features of The Indian Partnership Act, 1932 are as follows:

  • A partnership is easy to form. The partnership comprises of a partnership deed that enlists the rights, duties and liabilities of a partner. Registration of a partnership involves registration of the deed. However, if the firm is not registered, it will be deprived of certain legal benefits.
  • The minimum number of partners must be two, while the maximum number can be 10 in case of banking business, and 20 in all other types of business.
  • The firm has no separate legal existence of its own i.e., the firm and the partners are one and the same in the eyes of law.

Branch office

Companies incorporated outside India can set up Branch Offices in India with specific approval of the Reserve Bank of India. Such Branch Offices are permitted to represent the parent / group companies and undertake the following activities in India:

  • Export / Import of goods.
  • Rendering professional or consultancy services.
  • Carrying out research work in areas in which the parent company is engaged.
  • Promoting technical or financial collaborations between Indian companies and a parent or overseas group company.

Liaison / Representative office

A Liaison Office (also known as

Representative Office) can undertake only liaison activities. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India.

Setting up a liaison office in a sector in which 100% FDI is allowed under the automatic route requires the prior consent of the RBI. For the remaining sectors, RBI grants its approval after consultation with the Ministry of Finance.

Project office

A Project Office is a place of business established to represent the interests of a foreign company executing a project in India. Such offices are prohibited from undertaking or carrying on any activity other than the activity relating, and incidental, to the execution of the project for which such office is established.

The Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India, and

  • The project is funded directly by inward remittance from abroad; or
  • The project is funded by a bilateral or multilateral International Financing Agency; or
  • The project has been cleared by an appropriate authority; or
  • A company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.

If the above conditions are not met, RBI approval must be sought. The tax on project offices is 40% plus applicable surcharges and cess.

Trust / Foundation

A trust arises when one person (the “trustee”) holds legal title to property but is under an equitable duty to deal with the property for the benefit of some other person or class of persons called beneficiaries. Like a partnership, a business trust is not regarded as a legal entity. The trust, as such, does not incur rights or liabilities.

Joint venture

A foreign company can invest in an Indian company through a joint venture agreement (or as a wholly owned subsidiary) in the areas which are not otherwise reserved exclusively for the public sector or which are not under the prohibited categories such as real estate, insurance, agriculture, and plantation.

Association of persons (AOP)

Association of persons is a group of persons who join for a common purpose and associate themselves in an income producing activity. Persons for such association includes:

  • Individuals
  • Firms
  • Companies
  • HUFs, etc.

The purpose of an AOP varies and hence there is no mandated registration procedure. AOPs shall register under various acts governing incorporation, depending upon the purpose behind incorporating such an AOP.

Body of individuals (BOI)

A Body of Individuals is a group of individuals who come together for a common purpose. Such common purpose may or may not be to earn income. A BOI may not be formed out of a common will or an intention.


Latest version updated 13th October 2017

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