Pvt Ltd, LLP or Proprietorship: choosing the right structure
The structure you pick on day one decides how you raise money, how much paperwork you file each year, and how exposed your personal assets are.
Accellaw Editorial
Most founders pick a business structure in an afternoon and live with it for years. It is worth slowing down, because the choice shapes three things: how you raise capital, how much ongoing compliance you carry, and whether your personal assets are on the line if things go wrong.
Sole proprietorship
A proprietorship is not a separate legal entity — the business is you. There is no registration law for proprietorships as such; the business is recognised through registrations it needs anyway, such as GST, Udyam (MSME) or a state Shops and Establishments licence. It is the quickest to start and has the lightest compliance, but there is no limited liability: business debts are personal debts. You also cannot bring in co-owners or investors without changing structure.
- Best for: freelancers and small, owner-run businesses testing an idea
- Watch out for: unlimited personal liability and limited credibility with larger clients
Limited Liability Partnership (LLP)
An LLP is a body corporate under the Limited Liability Partnership Act, 2008, with liability limited to each partner's agreed contribution. It needs at least two designated partners, at least one of them resident in India (Section 7), and its LLP agreement must be filed with the Registrar within 30 days of incorporation. Annual filings are Form 11 (annual return) and Form 8 (statement of account and solvency), and an audit is required only if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh. The trade-off is that LLPs cannot issue shares, so most venture investors will not invest in one.
- Best for: consultancies, agencies, and businesses that will not raise equity
- Watch out for: converting later to a company is possible but adds cost and time
Private Limited Company
A private limited company under the Companies Act, 2013 offers limited liability, a clear share structure, and the ability to issue equity and ESOPs. It needs at least two directors and two shareholders, and at least one director must have stayed in India for 182 days or more in the financial year (Section 149(3)). It is the default for startups that plan to raise external funding. In return, it carries the heaviest compliance of the three: board meetings, statutory registers, annual filings (AOC-4 and MGT-7), and a statutory audit every year regardless of turnover.
- Best for: startups planning to raise investment or grant ESOPs
- Watch out for: fixed annual compliance cost even in a quiet year
One Person Company
If you are a solo founder who wants limited liability, a One Person Company is a fourth option: a private company with a single member and a nominee. Since 2021 there is no turnover or capital threshold that forces it to convert, but it still cannot take in investors without becoming a private limited company first.
A simple rule of thumb
If you expect to raise equity in the next two years, start as a private limited company. If you will stay owner-funded with two or more partners, an LLP is usually the efficient choice. If you are testing an idea alone, a proprietorship or an OPC is fine — just plan the move before you take on real liabilities.