The structure you choose in the first week of a business affects how you raise money, how much compliance you carry and how you are taxed. The three most common choices for a new venture in India are a Private Limited company, a Limited Liability Partnership (LLP) and a One Person Company (OPC).
At a glance
| Private Limited | LLP | OPC | |
|---|---|---|---|
| Owners | At least 2 directors and 2 shareholders (up to 200 members) | At least 2 partners | One member, with a nominee |
| Liability | Limited to the shares held | Limited to the agreed contribution | Limited to the shares held |
| Raising equity | Yes: equity and preference shares, ESOPs | No shares or ESOPs; investors are usually less comfortable | Not directly; conversion to a Private Limited company is needed first |
| Annual compliance | Financial statements and annual return with the ROC; board and general meetings | Two annual filings with the ROC; no board meetings | Financial statements and annual return with the ROC; fewer meeting requirements |
| Audit | Mandatory every year | Only above turnover of ₹40 lakh or contribution of ₹25 lakh | Mandatory every year |
| Income tax | Corporate rate: a concessional 22% if conditions are met, or 25% / 30%, plus surcharge and cess | 30% plus surcharge and cess | Corporate rate, as for a Private Limited company |
How to choose
- Planning to raise money from investors? A Private Limited company is the standard vehicle, because it can issue shares and ESOPs.
- A professional practice or a small, closely held business? An LLP offers limited liability with fewer formalities and no mandatory audit at lower turnover.
- A solo founder testing an idea? An OPC gives limited liability to a single owner. It is not meant for raising outside equity, and it cannot carry on certain activities, such as non-banking financial business.
Can I change later?
Yes, conversions are possible, for example from an OPC or an LLP to a Private Limited company. They involve filings, costs and, in some cases, tax and stamp-duty questions, so it is better to choose with your plans for the next two or three years in mind.
Next step
The right answer depends on your funding plans, your co-founders, your sector and your tax position. Read more on our startup advisory page, or book a 15-minute call to talk it through.
This article is a general overview and not professional advice. Thresholds, rules and rates change from time to time; please confirm the current position with a Chartered Accountant.
This article gives general information only and is not professional advice. Rules, rates and due dates change from time to time. Please consult a Chartered Accountant before acting on any tax, GST or legal matter.