The structure you choose when starting a business affects your personal liability, the compliance you must keep up with, how you are taxed and whether you can bring in investors. Here is how the four common options compare.
| Proprietorship | Partnership firm | LLP | Private limited company | |
|---|---|---|---|---|
| Owners | One person | Two or more partners | Two or more designated partners | One or more shareholders (OPC) or two or more |
| Liability | Unlimited (personal assets at risk) | Unlimited | Limited to contribution | Limited to share capital |
| Separate legal entity | No | No | Yes | Yes |
| Registration | None required (GST, Udyam etc. as needed) | Partnership deed; registration recommended | With MCA | With MCA |
| Annual compliance | Lowest | Low | Moderate (annual ROC forms) | Highest (board meetings, ROC filings, audit) |
| Raising equity funding | Not possible | Difficult | Limited | Easiest |
When each one fits
- Proprietorship: a small business run by one person, where simplicity matters more than liability protection.
- Partnership firm: family businesses and small partnerships that want low compliance and are comfortable with unlimited liability.
- LLP: professional practices and businesses that want limited liability without the full compliance load of a company.
- Private limited company: businesses that plan to grow, take on investors or bank funding, or want the credibility of a company.
Tax is only part of the picture
Tax rates differ between structures, and the right answer depends on your expected profits, how you will take money out of the business and your other income. We work this out with you before you register.
Talk to us about setting up your business.
This article is for general information only and is not professional advice. Rules, rates and due dates change; please contact us before acting on it.