One of the biggest decisions you make when starting up gets the least thought: what legal structure to register under.
Most people just pick a private limited company because it "sounds professional", or a proprietorship because it's easiest. The truth is, the right choice depends on you — Are you raising funding? How many co-founders? How much risk and paperwork can you handle? This guide helps you choose with your eyes open.
Below is a plain comparison of the five main structures in India — proprietorship, partnership, LLP, OPC and private limited. Want us to register the right one? Our startup team handles it end to end.
The five structures at a glance
Start with this side-by-side view, then read the detail on whichever options fit. The rest of the guide explains each row.
| Structure | Owners | Liability | Tax | Compliance | Raise equity | Best for |
|---|---|---|---|---|---|---|
| Proprietorship | 1 | Unlimited | Slab rate | Lightest | No | Freelancers, solo traders |
| Partnership | 2+ | Unlimited | 30% flat | Light | No | Small family businesses |
| LLP | 2+ | Limited | 30% flat | Moderate | No | Professional services firms |
| OPC | 1 | Limited | 22% + cess | High | Limited | Solo founders wanting a company |
| Private Limited | 2–200 | Limited | 22% + cess | High | Yes | Startups raising funding |
Sole proprietorship
The simplest structure. You and the business are the same legal entity. No registration needed beyond a GST number (if applicable), a current account and any specific licence your industry requires (FSSAI, IEC, etc.).
- Liability: Unlimited. Your personal assets are at risk if the business owes money or loses a lawsuit.
- Tax: Taxed as an individual — same slabs as personal income tax. No separate corporate tax.
- Compliance: Lightest. File one ITR, maintain basic books if required. No MCA filings.
- Funding: Cannot raise equity. Bank loans are possible but limited without business credit history.
- Best for: Freelancers, consultants, solo traders with low liability risk and no plans for external funding. The moment you have employees, significant client contracts, or meaningful assets, unlimited liability becomes a real risk.
Partnership firm
Two or more people running a business together under a partnership deed. Governed by the Indian Partnership Act.
- Liability: Unlimited and joint. Each partner is personally liable for the firm's debts — including debts incurred by other partners acting on firm business.
- Tax: Firm is taxed at a flat 30% (+ surcharge/cess). Partners then receive profit shares which are exempt from tax in their hands.
- Compliance: Light. No mandatory audit below turnover thresholds. Deed registration is optional but recommended.
- Funding: Cannot raise equity. Bank financing is possible.
- Best for: Small family businesses and retail trade where partners trust each other and legal liability is manageable. The unlimited joint liability is a significant deterrent for most professional services and growing businesses.
Limited Liability Partnership (LLP)
The structure that fills the gap between a partnership and a company. Partners have limited liability; the LLP is a separate legal entity.
- Liability: Limited to each partner's agreed contribution. Personal assets are protected.
- Tax: LLP is taxed at 30% (+ surcharge/cess). Partners' share of profit is exempt, same as a firm.
- Compliance: Moderate. Form 11 (annual return) and Form 8 (accounts) annually. No statutory audit below ₹40L turnover / ₹25L capital. Director KYC for designated partners.
- Funding: Cannot issue shares or raise equity from investors. Suitable for bank debt or partner capital infusion.
- Best for: Professional services firms (consultants, CA firms, law practices), B2B service businesses, family-run operations that want limited liability without the full company compliance overhead.
One Person Company (OPC)
A company with a single shareholder and director. Introduced under the Companies Act 2013 to give solo entrepreneurs the benefits of limited liability in a corporate structure.
- Liability: Limited to share capital. Personal assets protected.
- Tax: Taxed as a company at 22% (new regime under Section 115BAA) or 25% for small companies with turnover up to ₹400 crore. Flat rate, no slab. Dividends are taxable in the hands of the shareholder.
- Compliance: Mandatory statutory audit every year regardless of turnover. Annual ROC filings (AOC-4, MGT-7A). Board meetings (only 1 director, so simpler).
- Funding: Can issue shares, but limited to one shareholder. If you want to add a co-founder or investor, you must convert to a Pvt Ltd.
- Best for: Solo founders who want limited liability and the credibility of "Pvt Ltd" on their invoice, but are genuinely a one-person operation with no co-founder or investor plans.
Private Limited Company
The most common structure for growth-oriented businesses. Two or more shareholders, up to 200. A separate legal entity that can own assets, enter contracts, raise equity and survive changes in ownership.
- Liability: Limited to share capital. Full personal asset protection.
- Tax: 22% corporate tax under the concessional regime (Section 115BAA), or 25% under the normal regime for domestic companies with turnover up to ₹400 crore. There is no Dividend Distribution Tax — DDT was abolished from FY 2020–21. Dividends are taxed in the shareholder's hands at their slab rate (the company deducts 10% TDS under Section 194 once dividends to a shareholder exceed ₹5,000 in a year). Founders also pay personal income tax on salary drawn from the company — salaries are a deductible expense. (Section 115BAB's 15% rate applies only to new manufacturing companies.)
- Compliance: Heaviest. Mandatory statutory audit every year. Monthly and annual ROC filings. Board meetings, board resolutions, share allotment filings. DIR-3 KYC for directors annually.
- Funding: Can raise equity from angels, VCs and strategic investors. Issue ESOPs. The only structure that's viable for formal equity fundraising.
- Best for: Any business planning to raise external equity funding, businesses with multiple co-founders who need a structure that manages ownership and exit clearly, and businesses where credibility with large enterprise clients or government buyers matters.
The decision rule in plain terms: If you're raising equity funding → Pvt Ltd, no question. If you're a solo founder with no co-founder or funding plans → OPC or proprietorship depending on your liability exposure. If you're two or more people building a services business with no equity fundraising plans → LLP. If you're already at scale and have unlimited liability exposure → stop, register a Pvt Ltd or LLP immediately.
Frequently asked questions
Can I convert from a proprietorship to a Pvt Ltd later?
There's no formal conversion mechanism — you effectively close the proprietorship and register a new company. Contracts and assets must be transferred. The earlier you make the switch, the cleaner it is.
Is a Pvt Ltd better for tax than an LLP?
It depends on your profit levels and how you draw income. A Pvt Ltd paying 22% corporate tax, with founders drawing salary (deductible expense), can be tax-efficient. An LLP at 30% with partners drawing profit shares may result in lower combined tax at lower profit levels. This needs to be modelled for your specific numbers.
Do I need to be in Bengaluru to register through Plus and Minus?
No. We handle company and LLP registrations for businesses across India. The entire process is digital — all you need to provide are KYC documents and a registered office address.
Choosing the right structure is a one-time decision that affects everything that follows. Our team advises on the right structure for your specific situation and handles the full registration — incorporation, PAN, TAN, bank account setup and any required licences.
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Our CS team advises on the right structure for your goals and handles the full incorporation — company or LLP registration, PAN, TAN and all post-incorporation registrations.