Proprietorship, LLP or private limited: choosing a structure

The legal form you choose affects liability, compliance, tax and your ability to raise money. Changing it later is possible but takes time and cost, so it is worth deciding deliberately at the start.

Sole proprietorship

The business and the owner are legally the same. It is quick to start and has the lightest compliance, but the owner is personally liable for business debts, and it cannot bring in investors as shareholders. It suits individual professionals and small, owner-run businesses.

Limited liability partnership (LLP)

An LLP is a separate legal entity with partners whose liability is generally limited to their agreed contribution. Compliance is lighter than for a company, and it suits professional firms and businesses with a few owners who do not plan to raise equity from outside investors.

Private limited company

A company is a separate legal entity owned by shareholders and run by directors. It has more compliance, including board meetings, statutory registers, audits and annual filings, but it can issue shares, grant ESOPs and accept equity investment. Most venture-backed startups use this structure.

If you expect to raise equity, start with the structure investors can invest in.

Questions to decide on

• Do you need to protect personal assets from business liabilities?
• Will you bring in partners or outside investors?
• Do you plan to offer employee stock options?
• How much compliance cost and effort can you carry each year?
• How do the tax rates and profit-extraction options compare for your expected profits?

Get the set-up right

Whichever structure you choose, register for the right taxes, open a separate bank account, and set up your accounting system from day one. Clean records from the start make every later step easier.