Summary: Startup founders commonly have to choose between a private limited company, limited liability partnership and One Person Company when establishing a business in India. A private limited company is registered under the Companies Act, 2013 and is presented as the structure investors expect, particularly because it supports preference shares and employee stock options. An LLP, governed by the LLP Act, 2008, involves two partners, comparatively lighter annual compliance and audit requirements linked to prescribed thresholds, but is described as less suitable for raising equity investment. An OPC is intended for a founder building alone, with one member and a nominee, and provides limited liability. The article uses the intended funding plan as the principal practical question for choosing the structure, suggesting that founders who may raise investment should consider a private limited company, while a services firm or practice funded from its own revenue may consider an LLP and a solo founder may consider an OPC. It also discusses changes effective from 1 April 2021 concerning OPC conversion and eligibility of non-resident Indian citizens, including removal of the earlier paid-up capital and turnover conversion thresholds and reduction of the residency requirement to 120 days. The article then addresses registration costs, corporate taxation, and three areas of early-stage documentation: a founders agreement, intellectual property assignment and a compliance calendar. It concludes that the structure should be selected with the funding question in mind, while careful attention should also be given to foundational paperwork and continuing compliance.
Introduction
I spend most of my working week with startup founders. Some arrive with a pitch deck and no company. Some arrive with a company and no paperwork. And almost every first conversation, sooner or later, lands on the same question: what should we register as?
It sounds like a small decision. It is not. The structure you pick decides how investors see you, how much compliance you carry every year, how you are taxed, and how painful it becomes to fix things later. So let me answer it here the way I answer it in my office, in plain words.
The three doors in front of you
A private limited company is registered under the Companies Act, 2013 through the SPICe+ form on the MCA portal. You need two shareholders and two directors, and at least one director must live in India. This is the structure investors expect. It supports preference shares and employee stock options, which is why almost every funded startup in India is a private limited company.
A limited liability partnership, or LLP, comes under the LLP Act, 2008. Two partners, lighter annual compliance, and audit only after you cross certain thresholds. It is comfortable, and that comfort is exactly why it disappoints people later: it is a poor vehicle for raising equity money.
A One Person Company, or OPC, is for the founder building alone. One member, plus a nominee named in Form INC-3 who steps in if something happens to you. Your company name carries the tag “(OPC) Private Limited.”
The one question that decides it
Founders expect a long analysis. I usually ask one question instead: do you plan to raise money from investors, even two or three years from now?
If the answer is yes, or even maybe, register a private limited company and be done with it. Converting an LLP later, mid-fundraise, while an investor waits, is slow and expensive. I have watched founders lose momentum on a round for exactly this reason. Starting correctly costs less than correcting.
If the answer is a clear no—you are building a services firm, an agency or a practice that grows on its own revenue—then the LLP deserves a serious look. Its two annual filings, Form 8 and Form 11, are a far lighter load than the audit, Board meetings and filings a company carries.
And if you are alone and want limited liability today, the OPC is a genuinely good starting point. Bring in a co-founder or an investor later; convert when it happens.
What people still get wrong about OPCs
Here I have to correct something because I hear it from founders regularly, and sometimes from their advisers, which worries me more.
The rules changed on 1 April 2021 through the Companies (Incorporation) Second Amendment Rules, 2021, and two old restrictions died that day.
OPC conversion restrictions
First, an OPC no longer has to convert into a private limited company when it grows. The old thresholds—₹50 lakh of paid-up capital or ₹2 crore of average turnover—were deleted. Your OPC can scale as far as you can take it. Conversion is now your choice, made by altering the memorandum and articles and filing Form INC-6, and the old two-year waiting period for voluntary conversion is gone as well.
NRI incorporation of OPCs
Second, non-resident Indians can now incorporate OPCs. Any natural person who is an Indian citizen qualifies, resident or not, with the residency test relaxed to 120 days of presence in the preceding financial year. A foreign citizen still cannot form one, but the NRI founder building for the Indian market can.
If someone tells you an OPC must convert at ₹2 crore turnover, they are quoting law that has been dead for over five years. It is a useful test of how current your adviser is.
The money questions, answered honestly
What does registration actually cost? Less than most founders fear, on the government side. For authorised capital up to ₹15 lakh, which covers nearly every new startup, the MCA filing fee is nil. Name reservation through SPICe+ Part A is ₹1,000. Stamp duty varies by state. Digital signatures cost a market rate per director. The real variation between service providers is professional fees, so always ask for one itemised quote in writing before you commit to anyone.
And tax? A company, including an OPC, pays corporate tax: 25% for turnover up to ₹400 crore, or 22% under Section 115BAA if it gives up certain exemptions, plus applicable surcharge and cess. An LLP pays 30% plus applicable surcharge and cess. Note that an OPC founder gets no individual slab benefit. More than one solo founder has discovered that after incorporation rather than before, which is the wrong order.
The paperwork that matters more than the structure
After years of doing this work, I will tell you a secret: the entity you choose matters less than three documents almost every early startup skips.
A written founders agreement, before equity moves, covering vesting, roles and exits. Written intellectual property assignment from every person who touches your product, including that freelance developer from the early days. And a compliance calendar you actually follow from month one, because Form INC-20A within 180 days, the first auditor within 30 days, and the annual filings do not remind you by themselves.
Nearly every messy dispute that reaches my desk traces back to one of those three, not to the choice between an LLP and a company. Pick your structure with the funding question, then spend your real attention on the paperwork above. Your future self, sitting across from an investor’s lawyer during due diligence, will be grateful.
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Disclaimer: This article shares general information only and is not legal advice. Please consult a qualified professional on the facts of your own matter.
