The structure you choose on day one is hard to change later, so think about where the business is going.
Private limited company
- Separate legal entity with limited liability
- Can issue shares and ESOPs — preferred by angel and venture investors
- Higher compliance: audits, ROC filings, board meetings
Limited liability partnership (LLP)
- Limited liability with lighter compliance than a company
- Partners share profits as agreed in the LLP agreement
- Cannot issue equity shares, so it is less suited to equity fundraising
Sole proprietorship
- Quickest and cheapest to start
- No separation between you and the business — unlimited personal liability
- Not eligible for DPIIT recognition
Our rule of thumb
Planning to raise equity or hire with ESOPs? Choose a private limited company. Running a services firm with partners and no plan to raise? An LLP may be enough.