LEGAL ENTITY
Legal Entity Means:
A legal entity can be an individual, an association, a company, a partnership or any societal form allowed by the authorized legal framework. It is an artificial person created at the moment of legal incorporation, with a specific name and personality to the eyes of the legal system. There are different types of legal entities and each one has particular privileges and responsibilities established by law.
For example, a sole proprietor is a kind of legal entity that has the advantage of being low-cost and simple but the individual has no asset protection. That means that any debt can be ultimately paid with the individual assets. In corporations shareholders have limited responsibilities and exposure to liabilities.
Types of Legal Entities:
Basically, there are three types of legal entities in which business can be conducted:
- sole proprietorship,
- partnership and
- corporation.
Within each category, there are several variations. Determining which form is best for a particular commercial enterprise depends on a variety of considerations, including the number of owners, acceptable liability of owners, tax treatment, transfer-ability of ownership interests, set-up costs, and other factors.
Comparisons between Legal Entities:
|
Category |
Proprietorship | Partnership firm | Company |
LLP |
OPC |
| Prevailing Law | No Such Law | The Partnership Act, 1932 | The Companies Act, 2013 | The Limited Liability Partnership Act, 2008 | The Companies Act, 2013 |
| Registration | Registration is Needed based on the nature of Business | Registration with Registrar of Firms required | Registration with Registrar of Companies required | Registration with Registrar of LLP required | Registration with Registrar of Companies required |
| Name of Entity | No Regulations | No Regulations | Name to contain ‘Limited’ in case of public company or ‘Private Limited’ in case of private company as suffix. | Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix | Name to contain ‘Private Limited’ as suffix and also use the word” One Person Company” under its name. |
| Perpetual Succession | No Perpetual Succession | It has perpetual succession and partners may come and go | It has perpetual succession and members may come and go | It has perpetual succession and partners may come and go | It has perpetual succession and member may appoint a nominee. |
| Charter Document | No Such Document | Partnership Deed defines scope and Operation and rights and duties of the Partners | Memorandum and Article of Association defines the scope of a company’s operation | LLP Agreement defines the scope operation and rights and duties of the partners vis-a-vis LLP | Memorandum and Article of Association will be the charter documents |
| Formalities of Incorporation | Based on the Nature of Business we have to get registered | Partnership Deed is to be filed with the Register of Firms along with the prescribed fees | Various e-forms along with the MOA & AOA are to be filed with ROC with prescribed fees | Various e-forms and the LLP Agreement are to be filed along with the prescribed fees | Similar to Company though e-forms are yet to be notified |
| Legal Proceedings | Proprietor can sue and be sued | A Partnership is a legal entity that can sue and be sued | A Company is a legal entity that can sue and be sued | A LLP is a legal entity that can sue and be sued | An OPC will be a legal entity that can sue and sued |
| Number of Members | One member | Minimum 2 & Maximum 50 Members | Minimum 2 & Maximum 200 members in case of private company and minimum 7 members in case of public company | Minimum 2 partners and no limit on maximum number of partners | Only 1 member |
| Liability of Partners/Members | Proprietor Liability is Unlimited | Partners Liability is Unlimited | Generally limited to the amount required to be paid upon each share | Limited to the extent their contribution towards the LLP | Generally limited to the amount required to be paid up on each share |
| Transfer /Inheritance of Rights | No Such Regulations | Regulations relating transfer are governed by the Partnership Deed | Ownership is easily transferable | Regulations relating transfer are governed by the LLP Agreement | Ownership can be transferred by appointing a nominee, who can be changed anytime by the member |
| Annual Filing | No Such Requirement | No Such Requirement | Annual financial statement and annual return are to be filed with the Registrar | Annual statement of accounts and Solvency & annual return is required to be filed | Annual financial statement and annual return are required to be filed |
| Audit of accounts | All Individual’s having Turnover more than 1 Crore (In Case of Business), more than 50 Lakhs (In Case of Profession) have to get Books of Accounts audited | All Partnership Firms having Turnover more than 1 Crore (In Case of Business), more than 50 Lakhs (In Case of Profession) have to get Books of Accounts audited | Companies are required to get their accounts audited annually as per the provisions of the Companies Act, 2013 | All LLP except for those having turnover less than Rs.40 lakh or Rs.25 lakh contribution in any financial year are required to get their accounts audited annually. | All OPCs will be required to get their Books of accounts audited |