Other BriefingsPrivate Limited vs. LLP vs. OPC: Which Business Structure Is Right for You?
India’s position as one of the world’s fastest-growing economies continues to attract global investors, multinational corporations, and entrepreneurs. Before entering the market, businesses must make a critical choice – selecting the right corporate entity. Whether opting for a Private Limited Company, Limited Liability Partnership, or One Person Company, this decision shapes compliance, fundraising, governance, and long-term scalability.
India continues to attract global investors, multinational corporations, and entrepreneurial talent as one of the fastest-growing major economies in the world. But before capital can be deployed, products marketed, or teams hired, one foundational decision shapes the course of business operations: choosing the right corporate entity.
The decision is not merely about compliance or paperwork; it influences fundraising options, governance structures, liability, brand credibility, taxation, and long-term scalability. In India, the three most common choices for businesses at an early stage are the Private Limited Company (Pvt Ltd), Limited Liability Partnership (LLP), and One Person Company (OPC). Each offers distinct benefits and limitations, and each has evolved in response to India’s dynamic corporate and investment landscape.
This article briefs business stakeholders and investors with a structured view of these entities, key differences, compliance obligations, and the strategic rationale behind why different types of firms – whether local entrepreneurs or foreign-invested companies – choose one over the other.
1. Private Limited Company (Pvt Ltd)
The core of India’s corporate landscape
A Private Limited Company is a prevalent corporate form in India and is seen as a more common choice for businesses with serious growth ambitions. Governed by the Companies Act, 2013, it provides a balance of credibility, limited liability, and flexibility in raising capital.
Key features
- Ownership and structure: Requires a minimum of 2 shareholders and allows up to 200. Shareholding can include both Indian and foreign entities, subject to foreign direct investment (FDI) rules.
Under Section 2(68) of the Companies Act, 2013, joint shareholders are treated as a single member for the purposes of calculating the membership limit. For instance, if a husband and wife jointly hold shares in a private company, they are counted as one member rather than two separate members.
- Management: Requires at least 2 directors, one of whom must be resident in India. A company may appoint more than 15 directors after passing a special resolution in general meeting (Section 149(1) of the Companies Act, 2013).
- Fundraising: Can issue equity shares, preference shares, and offer employee stock options (ESOPs) – making it highly attractive to venture capital (VC) and private equity (PE).
- Market perception: Enjoys high credibility with banks, investors, regulators, and clients.
Compliance and obligations
- Must register with the Ministry of Corporate Affairs (MCA) and obtain a Corporate Identification Number (CIN).
- Statutory audit is mandatory, irrespective of revenue or profit.
- Requires annual general meetings, annual returns, and financial statement filings.
- Compliance costs for a private limited company is higher as compared to LLP or OPC.
Compliance Costs for Private Limited Companies in India
Operating as a private limited company in India entails ongoing compliance with regulatory requirements under the Companies Act, Income Tax Act, and other applicable laws. These include government filings, statutory audits, tax submissions, and various event-based filings that must be completed within prescribed deadlines.
Key compliance obligations cover:
- Statutory audits to ensure financial accuracy and regulatory adherence.
- Tax filings, including income tax returns, TDS, and goods and services tax (GST) where applicable.
- Registrar of Companies (ROC) filings, such as annual returns and financial statements.
- Professional services from company secretaries, auditors, and tax consultants for advisory and execution support.
- Event-based filings, for changes in directorship, shareholding, or corporate structure.
- Maintenance of statutory records, registers, and minutes of meetings.
The total compliance cost varies depending on company size, turnover, sector, and regulatory complexity. Smaller companies usually face lower compliance expenses, while larger enterprises or those in highly regulated sectors can incur significantly higher costs.
Non-compliance can lead to penalties, such as daily fines for delayed filings, penalties for directors’ KYC lapses, and substantial fines for late income tax return submissions. Timely compliance not only avoids financial penalties but also strengthens business credibility and investor confidence.
Who chooses this and why?
Private Limited Companies are the go-to structure for high-growth start-ups, foreign subsidiaries, and established Indian businesses with aspirations to scale or raise institutional funding.
- Example: Google India Pvt Ltd and Amazon Seller Services Pvt Ltd operate in this form to align with India’s FDI requirements and because it supports structured investment.
- Example: Start-ups like Flipkart and Ola adopted Pvt Ltd early, enabling them to secure multiple rounds of venture funding.
In practice, if an international company wants to establish a subsidiary in India, a Pvt Ltd is almost always the chosen structure due to its global compatibility and investor acceptance.
2. Limited Liability Partnership (LLP)
Flexibility with liability protection
The Limited Liability Partnership, introduced under the LLP Act, 2008, combines features of partnerships with the protection of limited liability. It was designed to encourage entrepreneurship and professional services firms by offering flexibility in governance with lower compliance requirements than Pvt Ltd.
Key features
- Ownership and structure: Requires at least 2 designated partners, one of whom must be resident in India. The term “resident in India” means a person who has stayed in India for a period of not less than 128 days during the financial year. There is no cap on the maximum number of partners.
- Management: Internal rules are defined by the partnership agreement rather than strict corporate law, making governance adaptable.
- In case of a foreign LLP, the central government may make rules for provisions in relation to establishment of place of business by foreign LLP within India and carrying on their business.
- Fundraising: Cannot issue shares; capital infusion must come from partners’ contributions or debt financing like bank loans or overdrafts.
- Market perception: Accepted for professional and service firms but less attractive to investors compared to Pvt Ltd company structure.
Compliance and obligations
- Registered under the MCA like private or public companies, although with lighter obligations.
- Must file an annual Statement of Accounts and Solvency. Every LLP in India must prepare a Statement of Account and Solvency within six months from the end of the financial year
- Audit is only compulsory if turnover exceeds INR 40 million or if partners’ contributions exceed INR 2.5 million.
- Fewer reporting obligations compared to Pvt Ltd.
Who chooses this and why?
LLPs are most popular among professional services firms, consulting entities, boutique practices, and joint ventures that value flexibility but do not anticipate large-scale equity fundraising.
- Example: KPMG India Services LLP and EY LLP use this structure, as it matches global professional partnership governance while ensuring liability protection.
- Example: Smaller joint ventures between Indian firms and overseas partners often register as LLPs when the business is service-oriented and does not require institutional capital.
For foreign companies in professional services, LLPs provide a balance between local compliance and operational flexibility.
3. One Person Company (OPC)
Empowering solo entrepreneurs
Introduced by the Companies Act, 2013, the OPC was a response to India’s growing culture of solo entrepreneurs and independent professionals. It provides the benefits of limited liability to a single shareholder, while still allowing the business to function as a corporate entity.
Key features
- Ownership and structure: A single shareholder owns the company, with a nominee required in case of incapacity. Only a natural person who is an Indian citizen whether resident in India or otherwise shall be eligible to act as a member and nominee of an OPC.
- Management: The same person can be both shareholder and director. An individual can be a shareholder and a director of only one OPC.
- Fundraising: Limited – cannot issue shares to multiple investors.
- Scalability: Earlier, an OPC was required to convert into a private or public company if its share capital exceeded INR 5 million or if its average annual turnover during the relevant period crossed INR 20 million. Following the Companies (Incorporation) Second Amendment Rules, 2021, this requirement has been removed. An OPC can now continue to operate as an OPC regardless of its share capital or turnover levels.
Compliance and obligations
- Register under the MCA like Pvt Ltd.
- Must file annual returns and financials, but audits are only mandatory once certain thresholds are exceeded.
- Compliance burden is moderate – less than Pvt Ltd but more structured than a sole proprietorship.
Who chooses this and why?
OPCs are ideal for consultants, freelancers, small exporters, or early-stage entrepreneurs who want liability protection and credibility but are not ready for multiple shareholders.
- Example: IT consultants and boutique creative firms often start as OPCs before converting to Pvt Ltd when they attract investors.
While foreign firms do not generally adopt OPCs, it is a steppingstone for many Indian entrepreneurs.
|
Comparing at a Glance: Private Limited vs LLP vs One Person Company |
|||
|
Feature |
Pvt Ltd Company |
LLP |
OPC |
|
Shareholders/Partners |
2 – 200 |
2+ partners |
1 |
|
Foreign ownership |
Allowed under FDI norms |
Allowed with restrictions |
Not typically used by foreign firms |
|
Fundraising |
Equity shares, VC/PE friendly |
Debt/partner contribution only |
Limited – single owner |
|
Compliance |
High |
Moderate |
Moderate |
|
Scalability |
High |
Moderate |
Low – moderate |
|
Audit requirement |
Mandatory |
Conditional |
Conditional |
Strategic considerations for executives
For C-suite executives, entity choice is not just about initial setup – it is about aligning legal structure with growth strategy, capital requirements, investor relations, and governance.
- Investor-backed ventures: If external funding from VC/PE is anticipated, Pvt Ltd is the only viable choice. Investors will not engage with LLPs or OPCs.
- Service-oriented firms: Consulting practices, law firms, and global advisory businesses may lean toward LLPs for governance flexibility.
- Small-scale or solo operations: For individuals testing product-market fit, an OPC provides limited liability with simpler compliance, before converting to Pvt Ltd as the business matures.
Decision framework: Which structure fits your business?
Executives can use a simple decision tree to decide:
- Will you raise venture capital or private equity?
→ Yes → Private Limited
→ No → Go to 2 - Do you have multiple partners or plan a joint venture?
→ Yes → LLP (if lighter compliance is desired)
→ No → Go to 3 - Are you a solo entrepreneur testing the market?
→ Yes → OPC (with option to convert later)
→ No → Private Limited for future scalability
In practice:
- Global MNCs → Private Limited Subsidiary
- International professional services firms → LLP
- Local entrepreneurs / consultants → OPC initially, upgrading later to Pvt Ltd
The bottom line
India offers diverse entry points for businesses, but the right structure depends on growth vision and funding strategy.
- Private Limited Companies dominate because they align with global investment norms and support rapid growth.
- LLPs appeal to firms valuing operational flexibility over fundraising potential.
- OPCs empower individual entrepreneurs, though they often transition to Pvt Ltd setups.
For foreign investors, Private Limited Company remains the gold standard. For local entrepreneurs, OPCs and LLPs provide flexible pathways to eventually graduate into the mainstream Pvt Ltd ecosystem.
The corporate entity structure you choose at the start will shape investor confidence, regulatory ease, and ultimately, the scalability of your India play.
About Us
India Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Delhi, Mumbai, and Bengaluru in India. Readers may write to india@dezshira.com for support on doing business in India. For a complimentary subscription to India Briefing’s content products, please click here.
Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in China, Hong Kong SAR, Dubai (UAE), Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Bangladesh, Italy, Germany, the United States, and Australia.
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