Most founders choose a structure the way they choose a bank — by asking whoever incorporated last. That is how a business that will raise capital in eighteen months ends up as an unregistered partnership, and how a two-person consultancy ends up carrying the compliance load of a private limited company it never needed.
The table below is the one we put in front of clients. It compares the five structures we are asked about most: sole proprietorship, registered partnership firm, unregistered partnership firm, limited liability partnership (LLP) and private limited company. Read it across a row rather than down a column — the differences that matter are the ones between structures on a single dimension.
The comparison
| Particulars | Sole Proprietorship | Registered Partnership | Unregistered Partnership | LLP | Private Limited Company |
|---|---|---|---|---|---|
| Minimum requirement | Only 1 proprietor | Minimum 2 partners (maximum 50) | Minimum 2 partners (maximum 50) | Minimum 2 designated partners (no upper limit) | Minimum 2 shareholders and 2 directors (maximum 200 shareholders) |
| Governing law | No specific legislation exclusively governing proprietorships | Indian Partnership Act, 1932 | Indian Partnership Act, 1932 — without the benefits of registration | LLP Act, 2008 and the LLP Rules | Companies Act, 2013 and the rules made thereunder |
| Monitoring authority | None | Registrar of Firms | Limited | MCA | MCA |
| Formation cost | ₹10,000 | ₹35,000–40,000 | ₹25,000–30,000 | ₹36,000–45,000 | ₹45,000–60,000 |
| Annual maintenance | ₹10,000 | ₹15,000–20,000 | ₹15,000–20,000 | ₹20,000–40,000 | ₹30,000–50,000 |
| Separate PAN | No | Yes | Yes | Yes | Yes |
| Separate legal entity | No | No | No | Yes | Yes |
| Liability | Unlimited | Unlimited | Unlimited | Limited to contribution | Limited to unpaid share capital |
| Personal assets protected | No | No | No | Yes | Yes |
| Perpetual succession | No | No | No | Yes | Yes |
| Ability to sue | In the proprietor’s own name | The firm can sue | Major restrictions under Section 69, Indian Partnership Act, 1932 | The LLP can sue in its own name | The company can sue in its own name |
| Tax rate | Individual slab rates. Under the new regime, income up to approximately ₹12 lakh may effectively attract nil tax (subject to conditions, and assuming no other income) | 30% + 4% cess; 12% surcharge above ₹1 crore | 30% + 4% cess; 12% surcharge above ₹1 crore | 30% + 4% cess; 12% surcharge above ₹1 crore | 22% under Section 115BAA, or the turnover-based 25% for domestic companies with turnover up to ₹400 crore; 15% under Section 115BAB for eligible new manufacturers. Otherwise 30%. Plus surcharge and 4% cess |
| Profit withdrawal | Nil | Exempt under Section 10(2A) | Exempt under Section 10(2A) | Exempt under Section 10(2A) | Dividend taxable in the shareholder’s hands |
| Statutory audit | No | No | No | Turnover above ₹40 lakh, or capital contribution above ₹25 lakh | Always mandatory |
| Tax audit | Section 44AB | Section 44AB | Section 44AB | Section 44AB | Section 44AB |
| ITR form | ITR-3 / ITR-4 | ITR-5 | ITR-5 | ITR-5 | ITR-6 |
| Recurring filings | GST / TDS / ITR | GST / TDS / ITR | GST / TDS / ITR | GST / TDS / ITR / MCA forms | GST / TDS / ITR / MCA forms |
| Board meetings | Not applicable | Not applicable | Not applicable | Not applicable | Mandatory |
| Annual general meeting | Not applicable | Not applicable | Not applicable | Not applicable | Mandatory |
| Fund-raising capability | Extremely limited | Limited | Extremely limited | Better than a firm, but cannot issue shares | Excellent — can issue shares and attract investors and venture capital |
| Type of fund raising | Loans only | Loans and partners’ capital | Loans and partners’ capital | Loans and partners’ capital | Loans; and eligible to issue shares |
| FDI | No | Restricted | Restricted | Permitted in eligible sectors | Permitted |
| Transferability of ownership | Difficult | Subject to partner approval | Subject to partner approval | Easier, through the LLP Agreement | Comparatively easy, through a transfer of shares |
| Compliance burden | Very low | Moderate | Moderate | High | Very high |
| Best suited to | Freelancers | Family businesses | Family and small ventures | Professionals | Scalable businesses |
Formation and maintenance costs above are indicative, based on what our clients typically pay in Karnataka in FY 2026-27. They cover professional fees, government fees and stamp duty at ordinary rates, and will move with your capital, state and document count.
Reading the tax row properly
The company tax row is the one most often quoted wrongly, so it is worth unpacking. There is no single “company rate”. A domestic company pays:
- 22% if it opts into Section 115BAA, giving up specified deductions and incentives. With surcharge and cess this works out to roughly 25.17%. Most ordinary private limited companies opt in.
- 25% under the turnover-based rate prescribed by the Finance Act, if total turnover or gross receipts in the relevant prior year did not exceed ₹400 crore.
- 15% under Section 115BAB, available only to eligible new manufacturing companies.
- 25% under Section 115BA — a narrow, opt-in regime for certain new manufacturing companies incorporated on or after 1 March 2016. It is not the provision an ordinary company relies on, and it is frequently miscited as though it were.
- 30% if turnover exceeds ₹400 crore and no concessional regime has been opted into.
Surcharge and the 4% health and education cess apply on top in every case. A partnership firm or LLP, by contrast, has one rate — 30% — whatever its turnover.
How we actually choose
The table does not make the decision. Four questions usually do:
- Will you raise external capital? If a venture investor or an institutional round is plausible within three years, incorporate as a private limited company now. Every term sheet you will receive assumes it, and converting later is expensive and slow.
- What is your downside if something goes wrong? A proprietorship and a partnership firm both expose your personal assets without limit. If the business carries inventory, borrows, employs at scale, or signs contracts with penalty clauses, that exposure is the whole argument for an LLP or a company.
- Do you have receivables you may one day have to sue for? This is where an unregistered partnership is uniquely dangerous. Section 69 of the Partnership Act bars an unregistered firm from filing suit to enforce a contract. See our companion piece, Registered vs unregistered partnership firm.
- What compliance load can you actually carry? A private limited company means board meetings, an AGM, annual ROC filings and a mandatory statutory audit from day one, whether or not you have turnover. That is a real, recurring cost of time as much as money.
For a solo consultant with no employees and no borrowing, a proprietorship is often correct and everything else is overhead. For two professionals sharing a practice, an LLP is usually the right balance. For anything that intends to raise money, hire broadly, or scale, it is a private limited company — and the sooner the better.
One caveat
This is a structural comparison, not personalised advice. The right answer depends on facts this article cannot see: the promoters’ tax residency, foreign participation and FDI considerations, your sector’s regulatory framework, intended customer geography and how you intend to exit. A conversation before you incorporate is worth considerably more than a conversion afterwards.
Sources
Talk to our team.
A 30-minute call with our team — no deck, no follow-up email blasts. Just a read on how this applies to your facts.