Last reviewed: 25 September 2026. Choosing the wrong business structure is an expensive mistake to undo later. Proprietorship, partnership, OPC, LLP and private limited company each differ on liability, compliance, tax and the ability to raise capital. This guide compares all five across the factors that actually matter, works through the tax on ₹20 lakh of profit in each, and covers the choice for foreign companies and NRI founders, so you can register the structure that fits your 2-3 year plan, not just the cheapest one today. Tax references are to the Income-tax Act, 2025 for tax year 2026-27 onward, with the old 1961 section in brackets.
At a glance
Side-by-side comparison
| Structure | Liability | Compliance | Funding fit |
|---|---|---|---|
| Sole proprietorship | Unlimited (personal) | Minimal | Low |
| Partnership firm | Unlimited (partners) | Low | Low |
| OPC | Limited | Moderate | Limited |
| LLP | Limited | Light | Limited |
| Private limited company | Limited | Higher (lighter for a small company) | Strong |
"Higher" compliance for a company is softened for a small company. Since 1 December 2025 (MCA notification G.S.R. 880(E)), a private company with paid-up capital up to ₹10 crore and turnover up to ₹100 crore qualifies. It files the abridged annual return (MGT-7A), need not prepare a cash flow statement, and can hold two board meetings a year.
The fuller comparison
| Factor | Proprietorship | Partnership firm | LLP | OPC | Private limited |
|---|---|---|---|---|---|
| Registration | No separate registration; GST/Udyam/Shop Act as needed | Partnership deed; registration with the Registrar of Firms optional but advisable | MCA incorporation (FiLLiP) with LLP agreement | MCA incorporation (SPICe+) | MCA incorporation (SPICe+) |
| Minimum owners | 1 | 2 | 2 designated partners | 1 member + nominee | 2 shareholders, 2 directors |
| Annual filings | ITR | ITR-5 | Form 8, Form 11, ITR-5 | AOC-4, MGT-7A, ITR-6 | AOC-4, MGT-7/7A, ITR-6, DIR-3 KYC |
| Statutory audit | No (tax audit above limits) | No (tax audit above limits) | If turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh | Always | Always |
| Income-tax rate | Individual slabs | 30% + surcharge/cess | 30% + surcharge/cess | Company rates | 22% under s.200 (old 115BAA), or 25%/30% |
| Taking profits out | Owner's income directly | Remuneration and interest (deductible within limits); share of profit exempt | Same as a firm | Salary or dividend | Salary or dividend (dividend taxed in shareholder's hands) |
| FDI | Not suitable | Not suitable | Only in 100% automatic-route sectors without FDI-linked conditions | Indian-citizen member only | Automatic route in most sectors |
| Conversion paths | Into a company or LLP by transfer of business | Into an LLP (LLP Act) or company | Into a company (Companies Act, s.366) | Into a private or public company at any time | Into an LLP (LLP Act, Third Schedule) |
Worked example: tax on ₹20 lakh of profit
Assume a business earns ₹20 lakh before owner pay in tax year 2026-27, the owner uses the new regime, and surcharge does not apply. The figures are illustrative; your deductions, presumptive options and other income will change them.
| ₹20 lakh profit | Proprietorship | LLP (founder draws maximum remuneration) | Private limited (s.200, profit fully paid out as dividend) |
|---|---|---|---|
| Entity-level tax | Nil | ₹1,93,440 (31.2% on ₹6.2 lakh left after ₹13.8 lakh remuneration) | ₹5,03,360 (25.168% on ₹20 lakh) |
| Owner-level tax | ₹2,08,000 (slabs on ₹20 lakh, with cess) | ₹90,480 (slabs on ₹13.8 lakh, with cess) | ₹1,08,676 (slabs on ₹14,96,640 dividend, with cess) |
| Total tax | ₹2,08,000 | ₹2,83,920 | ₹6,12,036 (₹5,03,360 if profits are retained) |
The LLP remuneration cap comes from section 35(e) (old 40(b)): on the first ₹6 lakh of book profit, the higher of ₹3 lakh or 90%, and 60% of the balance. On ₹20 lakh that is ₹5.4 lakh plus ₹8.4 lakh, or ₹13.8 lakh. The company column shows why companies suit businesses that reinvest profits: the 25.168% entity rate is final only while profits stay in the company. A founder who draws everything out pays twice. Salary to a working director is deductible and changes the picture, so model it before deciding.
How to choose
- Bootstrapped, low-risk, solo trade - a proprietorship keeps it simple and cheap.
- Partner-led services firm - an LLP gives liability protection with light compliance.
- Single founder wanting a corporate identity - an OPC fits.
- Planning to raise funds or issue ESOPs - go straight to a private limited company.
Let your funding plans, liability needs and how you will draw profits drive the choice - the lowest set-up cost is rarely the right basis on its own. For a deeper LLP-versus-company view, see our LLP vs private limited company comparison, or try the business structure selector.
Entity choice for foreign companies and NRI founders
- Private limited company or wholly owned subsidiary. The usual route. FDI is permitted under the automatic route in most sectors, with FC-GPR reporting within 30 days of allotment and the annual FLA return to the RBI.
- LLP. FDI is allowed only in sectors where 100% FDI is permitted under the automatic route and there are no FDI-linked performance conditions. It suits some service businesses but is harder to bring in later investors.
- OPC. Open to an NRI who is an Indian citizen, but not to a foreign company or a foreign national.
- Branch or liaison office. A foreign company can operate through a branch or liaison office with AD bank or RBI approval, without forming an Indian entity. A liaison office cannot earn income in India.
We set up and run Indian subsidiaries for foreign parents, including accounting, FEMA filings and CFO reporting, through our foreign subsidiary accounting, CFO and FEMA service.
Frequently asked questions
What business structures can I register in India?
The common options are a sole proprietorship, partnership firm, one person company (OPC), limited liability partnership (LLP), and private limited company. Each differs on liability, compliance, tax and ability to raise funds.
Which is easiest and cheapest to start?
A sole proprietorship is the simplest and cheapest, needing minimal registration, but it offers no separate legal identity and the owner is personally liable for all debts.
Which structure protects my personal assets?
LLPs, OPCs and private limited companies give limited liability, so owners are generally not personally liable beyond their contribution. Proprietorships and general partnerships do not.
Which is best if I want to raise funding?
A private limited company - it is the only structure that supports equity investment, ESOPs and a clean cap table that investors expect.
What is an OPC and who is it for?
A One Person Company suits a single founder who wants limited liability and a corporate identity without a second shareholder. Since 1 April 2021, any Indian citizen, resident or not, can form an OPC; the residency test for the nominee and member was cut from 182 to 120 days; and the paid-up capital and turnover limits that forced conversion were removed, so an OPC can convert into a private or public company at any time.
How does taxation differ across structures?
Proprietors are taxed at individual slab rates. LLPs and partnership firms pay 30% (plus surcharge and cess), with partner remuneration within limits deductible. From tax year 2026-27, companies can opt for 22% under section 200 of the Income-tax Act, 2025 (old 115BAA), or pay 25% where turnover in the relevant earlier year did not exceed ₹400 crore, with dividends taxed again in shareholders' hands. The right choice depends on how you take profits out.
Which structure should a foreign company or NRI founder use in India?
Most use a private limited company, often a wholly owned subsidiary, because FDI is permitted under the automatic route in most sectors. An LLP can take FDI only in sectors where 100% FDI is allowed under the automatic route without FDI-linked performance conditions. A proprietorship or partnership firm is generally not suitable for foreign investment. An NRI who is an Indian citizen can also form an OPC. A branch or liaison office is an alternative for a foreign company that does not want a separate Indian entity.
Can I change my structure later?
Yes - for example proprietorship to company, or LLP to company - but conversion costs time, money and tax, so it is better to choose with your 2-3 year plan in mind.
What should drive my choice?
Your funding plans, need for liability protection, expected compliance budget, number of owners, and how you will draw profits - not just the lowest set-up cost.
We match the structure to your plans and handle the registration end to end.
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WhatsAppLinkedInSchedule a callDisclaimer: This article is for general guidance only and is not a substitute for advice on your specific facts and the latest law. Tax figures use the new-regime slabs and company rates for tax year 2026-27 under the Income-tax Act, 2025; company-law thresholds reflect MCA notification G.S.R. 880(E) dated 1 December 2025 and the OPC amendments effective 1 April 2021. Please consult before registering.