Company Registration

Let’s try and understand the types of business structures available in India. Here is a list of some of them:

  • One Person Company (OPC)
  • Limited Liability Partnership (LLP)
  • Private Limited Company (PLC)
  • Public Limited Company (PLC)

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What are the types of business structures in India?

Let’s try and understand the types of business structures available in India. Here is a list of some of them:

1.    One Person Company (OPC): Recently introduced in the year 2013, an OPC is the best way to start a company if their exists only one promoter or owner.  It enables a sole-proprietor to carry on his work and still be part of the corporate framework.
2.    Limited Liability Partnership (LLP): A separate legal entity, in an LLP the liabilities of partners are only limited only to their agreed contribution.   
3.    Private Limited Company (PLC):  A company in the eyes of the law is regarded as a separate legal entity from its founders  It has shareholders (stakeholders) and directors (company officers). Each individual is regarded as an employee of the company.
4.    Public Limited Company (PLC) : A PLC is a voluntary association of members which is incorporated under company law. It has a separate legal existence and the liability of its members are limited to shares they hold.

Why is it important to choose the right business structure?

It is important to choose your business structure carefully as your Income Tax Returns will depend on it. While registering your enterprise, remember that each business structure has different levels of compliances that need to be met with. For example, a sole proprietor has to file only an income tax return. However, a company has to file an income tax return as well as an annual returns with the registrar of companies. A company’s books of accounts are to be mandatorily audited every year. Abiding by these legal compliances requires spending money on auditors, accountants and tax filing experts.Therefore, it is important to select the right business structure when thinking of company registration. An entrepreneur must have a clear idea of the kind of the legal compliances he/she is willing to deal with.

  While, some business structures are relatively investor-friendly than others, investors will always prefer a recognised and legal business structure. For example, an investor may hesitate to give money to a sole proprietor. On the other hand, if a good business idea is backed by a recognised legal structure (like LLP, Company, etc) the investors will be more comfortable making an investment.

How to choose a business structure while applying for company registration in India?

Let’s take a look at some important questions every entrepreneur must ask himself before he/she finally decide upon a business structure.

How many owners/partners will your business have?

If you are single person who owns the entire initial investment required for the business, a  One Person Company would be ideal for you. On the other hand, if your business has two or more owners and are actively seeking an investment from other parties a Limited Liability Partnership (LLP) or Private Limited Company would suit you best.

Should your initial investment determine your choice of business structure?

The answer to that question is – Yes, if you want to spend less initially, it would be wise to go in for a Sole Proprietor, or a HUF or a Partnership. But, if you are sure that you will be able to recover the setup and compliance costs, you can opt for a One Person Company, LLP or a Private Limited Company

Willingness to bear the entire liability of the business.

Business structures like sole proprietor, HUF, and partnership firm have unlimited liability.

Income Tax Rates Applicable to businesses

The income tax rates applicable to a sole proprietorship and a HUF are  the normal slab rates. In case of a sole proprietorship, the business income is clubbed with the individual’s other income.But in case of other entities like partnership and company a tax rate of 30% is applicable.

Plans of getting money from investors.

As mentioned earlier, it is difficult to get investments when your business structure  is unregistered. 

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