Business Entity Comparison

Understanding Your Options in India

A detailed comparison of business structures under Indian law

Business Entity Types

  • Private Limited Company
  • One Person Company (OPC)
  • Limited Liability Partnership (LLP)
  • Partnership Firm
  • Proprietorship Firm

Each entity type has unique features, benefits, and compliance requirements.

Governing Acts & Registration

Entity TypeGoverning ActRegistration Requirement
Private Limited CompanyCompanies Act, 2013Mandatory
One Person CompanyCompanies Act, 2013Mandatory
Limited Liability PartnershipLLP Act, 2008Mandatory
Partnership FirmIndian Partnership Act, 1932Optional
Proprietorship FirmNo specified ActNot required

Registration provides legal recognition and benefits, especially for partnerships.

Number of Members

Entity TypeMembers
Private Limited Company2 – 200 shareholders
One Person CompanyOnly 1 (Indian resident)
Limited Liability Partnership2 – Unlimited (min. 2 Designated Partners)
Partnership Firm2 – 50 partners
Proprietorship FirmOnly 1 (Proprietor)

Separate Legal Entity & Liability

Entity TypeSeparate Legal EntityLiability Protection
Private Limited CompanyYesLimited (to share value)
One Person CompanyYesLimited (to share value)
Limited Liability PartnershipYesLimited (to agreed capital)
Partnership FirmNoUnlimited
Proprietorship FirmNoUnlimited

Limited liability entities protect personal assets from business debts.

Statutory Audit Requirements

Entity TypeAudit Requirement
Private Limited CompanyMandatory (within 30 days of incorporation)
One Person CompanyMandatory (within 30 days of incorporation)
Limited Liability PartnershipDependent (if turnover > INR 40L or contribution > INR 25L)
Partnership FirmNot mandatory (tax audit may apply)
Proprietorship FirmNot mandatory (tax audit may apply)

Ownership Transferability

Entity TypeTransferability
Private Limited CompanyRestricted (requires consent)
One Person CompanyNo (not easily transferable)
Limited Liability PartnershipYes (with partner consent)
Partnership FirmNo (refer to partnership deed)
Proprietorship FirmNo (same as proprietor)

Existence & Foreign Participation

Entity TypeUninterrupted ExistenceForeign Participation
Private Limited CompanyYes (perpetual)Allowed (Automatic Route)
One Person CompanyYes (perpetual)Not Allowed
Limited Liability PartnershipYesAllowed (per FDI Guidelines)
Partnership FirmNoNot Allowed
Proprietorship FirmNoNot Allowed

Tax Rates

Entity TypeTax Rate
Private Limited CompanyModerate (25% for small companies + DDT)
One Person CompanyModerate (25% for small companies + DDT)
Limited Liability PartnershipHigh (30% on profit)
Partnership FirmHigh (30% on profit)
Proprietorship FirmLow (individual tax rates)

Proprietorships benefit from lower individual tax rates but lack liability protection.

Statutory Compliances

Entity TypeCompliance Level
Private Limited CompanyHigh
One Person CompanyModerate
Limited Liability PartnershipModerate
Partnership FirmLess
Proprietorship FirmLess

Key Takeaways

  • Private Limited Company: Best for scalability, foreign investment, and limited liability, but high compliance.
  • One Person Company: Ideal for solo entrepreneurs seeking limited liability, restricted to Indian residents.
  • LLP: Balances limited liability and flexibility, suitable for professionals and foreign participation.
  • Partnership Firm: Simple to start but unlimited liability and no separate entity status.
  • Proprietorship: Easiest to set up, low tax, but unlimited liability and no perpetual existence.

Conclusion

Choose the business entity that aligns with your goals:

  • Scalability & Investment: Private Limited or LLP
  • Solo Venture: OPC or Proprietorship
  • Low Compliance: Partnership or Proprietorship

Consult a legal or financial advisor to make an informed decision tailored to your needs.

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