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Business Structure For Startup

Choose Right Business Type

While starting your business, the most important decision is to decide the appropriate business structure, such as Private Limited, LLP, OPC etc., for your startup. We have compared several popular businesses for ease of understanding. Please hit chat with us in case you need help

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Business Structure Comparison Chart
S.No Features Proprietorship Partnership LLP Company
1.
Governing Law
No Specific Law
Partnership Act, 1932
LLP Act 2008
Companies Act 2013
2.
Definition
An unregistered business entity controlled and Managed by a single individual
Two persons come together for a common business objective and share the profit and loss in an agreed ratio. Registration of partnership firms is optional
An LLP is a hybrid entity that combines the simplicity of a partnership with the benefits of the limited liability of a corporation.
An incorporated entity under the Companies Act, 2013. The company form of business provides the benefit of limited liability for its shareholders.
3.
Ownership
Sole ownership with one person
  • Minimum - 2 Person
  • Maximum - 20 Person
  • Minimum - 2 Person
  • Maximum - Unlimited
  • Minimum - 2 Person
  • Maximum - 200 Person

(In case of OPC only single person)

4.
Profit Sharing
100% to the Proprietor
Shared in agreed profit sharing ratio as per the partnership agreement
Shared in agreed ratio as per LLP Agreement.
Shareholder are entitled to dividend out of the profits of the company
5.
Management
With sole proprietor
All partners (mutual agency)
Management of LLP is with Designated Partners and they take decisions in their meetings.
Directors of the company are responsible for day to day management of the company.
  • Minimum Director - 2
  • Maximum Director - 15
6.
Registration Time
1 Day
1 Day
7-15 Days
2-7 Days
7.
Promoter Liability
Unlimited
Unlimited
Limited
Limited
8.
Documentation
  • MSME
  • GST Registration
Partnership Deed
  • Certificate of Incorporation
  • LLP Agreement
  • MOA
  • AOA
  • Certificate of Incorporation
9.
Transferability
Non Transferable
Transferable if registered under the partnership act
Transferable
Transferable
10.
Regular Compliance
  • GST
  • TDS
  • PF & ESIC if Employee
  • GST
  • TDS
  • PF & ESIC if Employee
  • PT
  • GST
  • TDS
  • PF & ESIC if Employee
  • PT
  • GST
  • TDS
  • PF & ESIC if Employee
  • PT
11.
Compliance
File ITR if the turnover is more than ₹2.5 Lakh
ITR - 5
  • Form 11
  • Form 8
  • ITR-5
  • Statutory Audit
  • ITR-6
  • ROC Annual Return
Business Structure Based on the Business Activity
The proposed business activity of the business plays a vital role in deciding the appropriate form of the business structure while starting a business. One form of business structure may not be suitable for every business. For example, social activities and the profit-making company have two entirely different objectives. We have analysed, and in the below table, the most appropriate business structure for specific business activity is provided below.
Profit Motive Business Financial Service Organisation Non Profit Organisation
  1. Bank
  2. NBFC
  3. Asset Reconstruction Company
  4. Micro Finance Institutions
  5. Nidhi Company
  6. Payment Banks
  1. Section 8 Company
  2. Society
  3. Trust
FDI in Indian Business

Generally, FDI is permitted in India; there are two routes through which foreign direct investment can come to India. Most of the sectors are open for 100% FDI under automatic route. We have categorized the business structure suitability in the below table.

Automatic Route: One is known as an automatic route where there is no need to obtain prior permission before setting up a company or subscribing to the shares in an existing company. However, post inward remittance of the FDI, a reporting in FC-GPR is to be filed to RBI through the AD Bank.

Approval Route: Few strategic sectors and the FDI originating from a country that shares land boundaries with India, such as China, Pakistan, Afghanistan, Afghanistan etc., are considered under the Approval Route. In the approval route, the FDI proposals are approved on a case to case basis by the concerned ministry.

100% Indian Ownership 100% FDI NRI or OCI
  1. Company
  2. OPC
  3. LLP
  4. Partnership
  5. Proprietorship
  6. Section 8 Company
  1. Company
  2. LLP
  1. Company
  2. LLP
  3. Partnership*
  4. Proprietorship*
FDI in Proprietorship and Partnership
is allowed only on Non-Repatriation Basis/
Risk & Liability of a Business Structure

We advise considering the risk or possible liability of a business and then deciding your company’s business structure. One can see that a small retail shop has almost nil risk or liability in comparison to a business that is in foreign trade or dealing in hazardous chemicals. From the perspective of Risk and Liability, the business structure may be divided into two categories. The first category is where the owner’s liability is limited to the capital that he has promised to pay into the business, and another where the owners have unlimited liability.

Concept of Limited Liability: The business structure where the business and its owners are considered separate legal entities, there is general protection to the owners from the losses or liabilities of the business they own. They are responsible for paying only their share of the capital in the business as promised earlier (for example, by subscription to the MOA). Here in the below table, we have categorised business based on liability.

Unlimited Liability to Owners Limited Liability to Owners
  1. Proprietorship
  2. Partnership
  3. HUF
  1. Company
  2. OPC
  3. LLP
Control and Management in Specific Business Type
The business structure, such as the proprietorship, has no separation of ownership and management; the same is the case with the partnership firms. The control in the management of the partnership firm rests with all the partners collectively. However, in modern business like a company or LLP, there is a separation of ownership and management
S.No Business Type Ownership Management Control
1
Proprietorship
A single Individual known as the proprietor owns the proprietorship business. The proprietor alone invests all the capital and is entitled to the whole of the profits.
The proprietor controls the business, and there is no separation between the ownership and the management.
2
Partnership
In partnership, the partners collectively own the firm in their capital sharing ratio.
All the partners control the firm in terms of the partnership deed.
3
LLP
In LLP, the ownership is with the partners of the LLP in the ratio as defined in the contribution clause of the LLP Agreement.
The management control of the LLP is with the designated partners of the LLP.
4
OPC
In OPC a single person, known as shareholder, is the owner of the OPC
The management control of the OPC is with the directors appointed by the shareholder of the OPC.
5
Private Limited
The equity shareholders own a private limited company in the ratio in which they hold the company's equity shares.
The board of directors of the company exercise effective control of the management of the company.

Wondering How to Start a Business.

Our startup advisors are available to answer all your queries on the requirements, step-wise process, cost and the documents required to set up a business.

Formation Cost of Various Business Structures
The cost of setting up a startup depends on two factors, the professional fee and the government fee, stamp duty and taxes. Several factors affect the determination of government fee, such as the initial capital, location of the registered office address, and promoters. On specific pages of the startup type, we have dealt in detail about the overall cost of setting up a company, LLP, Partnership Firm or the proprietorship. We are just a click away, and you, please contact us to know the setup cost of your startup on a case to case basis.
Cost of Compliance of Several Business Structures
The cost of compliance varies from one business form to another. The regular cost of compliance like accounting, GST, TDS, Advance Payment of Tax, Payroll Processing, etc., is almost the same in every business type. However, there are differences in cost because of annual filing. Here is the applicability of annual filing for different business structures.
S.No Business Type ITR Annual Return Audit
1
Proprietorship
2
Partnership
3
LLP
4
OPC
5
Private Limited
Taxation of Various Business Forms
The Income Tax is levied differently on different forms of business, though we advise you to obtain a proper consultation and refer to the updated law prevailing at the point in time; here is a brief discussion on the taxability of the income of the most common business structure in India.
S.No Business Type Income Tax rate
1
Proprietorship
The proprietorship is not considered as a separate entity in law, and the income of the proprietorship firm is added in the ITR of the proprietor itself. In other words, no separate ITR is filed for the proprietorship firm. The Individual slab based taxation of 5% to 30% based on the income is applicable. The deduction under section 80C to U is also available on the income of such proprietor. For the FY 2021-22, the Individual tax rate slab is as under.
Under New Income Tax Regime U/s 115 BAC
No Total Income Tax Rate
1. Upto Rs. 2,50,000 NIL
2. Rs. 2,50,000 To Rs. 5,00,000 5%
3. Rs. 500001 to Rs. 7,50,000 10%
4. Rs. 7,50,001 to Rs. 10,00,000 15%
5. Rs. 10,00,001 to Rs. 12,50,000 20%
6. Rs. 12,50,001 to Rs. 15,00,000 25%
7 Above Rs. 15,00,001 30%
Under the old Income Tax Regime
No Total Income Tax Rate
1. Upto Rs. 2,50,000 Nil
2. Rs. 2,50,001 to Rs. 5,00,000 5%
3. Rs. 5,00,000 to Rs. 10,00,000 20%
4. Above Rs. 10,00,001 30%
2
Partnership & LLP
Under the Income Tax Act, all the provisions applicable to the partnership firm apply to the LLP. The Income Tax Rate for the partnership firm and the LLP is 30% flat on the total income.
3
Company

The income tax for companies ranges from 15% to 30%, depending on the case. There are two categories of companies as mentioned below.

A. Newly Incorporated Company: A company incorporated on or after 1st October 2019, and that does not claim any other concession, deduction, exemption under the income tax act, the tax rate is as under

ParticularsManufacturing CompanyOther Company
Tax Rate15%22%
Surcharge10% on tax10% on tax
Cess4% on tax & cess4% on tax & Cess
Effective Rate17.16%25.168%

B. For other companies the income tax rate is 25% in case the turnover is less than 400 Crores and 30% in all cases where the turnover is more than 400 Crores. The Surcharge and education cess at applicable rate is charged in addition to the basic income tax rate.

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