Private limited, LLP or OPC: choosing and changing your structure
Most founders choose a structure on cost. The real cost of the decision is not the registration fee but what you pay to change your mind later, at a moment when you have no time.
Summary
- If you intend to raise outside equity or give equity to a team, register a private limited company: an LLP cannot issue shares, options or convertible instruments.
- If you will fund yourself from cash flow or bank debt, an LLP usually costs less to run, with no board meetings and no audit below ₹40 lakh turnover and ₹25 lakh contribution.
- Converting an LLP later takes months and should start before a term sheet, and an entity you stop using still has to be closed properly or it can disqualify its directors.
Most founders choose a structure on cost. It is the one decision made before there is any revenue, usually on the advice of whoever is doing the registration, and the cheapest option wins.
That is understandable and often wrong. Not because cheap is bad, but because the cost of the decision is not the registration fee. It is what you will pay to change your mind later, at a moment when you have no time.
Here is how to think about it, and what to do if you have already chosen.
The four structures, in practice
Private limited company. A separate legal entity, shareholders with limited liability, directors who run it. It can issue shares, options and . It carries the highest compliance load: what a company files each year runs to eight or more recurring filings, plus board meetings and minutes.
Limited liability partnership (LLP). Partners with limited liability, governed by an agreement rather than by company law. Much lighter: what an LLP files is two annual returns, with no board meetings, and an only above ₹40 lakh turnover or ₹25 lakh contribution. It cannot issue shares.
One person company (OPC). A company with a single shareholder, who must nominate someone to take over on death or incapacity. Lighter than a private limited company, but still a company. Only an individual who is an Indian citizen can form one; since April 2021 that includes non-residents, and an OPC can convert into a private or public company at any time.
Sole proprietorship or partnership firm. Not a separate legal entity, and no limited liability: your personal assets are exposed to the business's debts. Minimal compliance. Fine for very small operations and genuinely risky beyond that.
The question that actually decides it
Skip the comparison table. Answer this: do you intend to raise outside , or give equity to a team?
If yes, a private limited company. There is no real alternative. An LLP cannot issue shares, options or convertible instruments, so there is nothing to give an investor or an employee, and investors need instruments that do not exist in an LLP. Foreign investment into an LLP is allowed only in sectors open to 100% foreign investment under the automatic route with no performance conditions. An OPC caps you at one shareholder, which ends the moment anyone else invests.
If no, an LLP is usually better. A professional practice, a services business, a family manufacturing operation, anything that will fund itself from cash flow or bank debt. You get limited liability without board meetings, minutes, statutory registers or the fuller filing load. For a business with steady operations and no equity plans, that saves real money and attention every year.
If you are genuinely unsure, lean private limited. Converting an LLP into a company is harder and slower than simply running a company you did not strictly need. Over-structuring costs you a modest amount every year. Under-structuring costs you weeks at the worst possible moment.
Over-structuring costs you a modest amount every year. Under-structuring costs you weeks at the worst possible moment.
Second question: how much compliance can you actually sustain?
This gets ignored, and it should not.
A private limited company with no one owning compliance ends up with unfiled returns, a reconstructed minute book and, eventually, disqualified directors. An LLP that files its two returns on time is in far better shape than a company that files nothing.
The right structure is the one you can actually run. If nobody in the business will own this and you will not engage someone to, factor that into the choice honestly.
If you already have an LLP and now want to raise
This is the most common structural problem we see, and it is entirely solvable, with notice.
Conversion into a private limited company is a defined process under section 366 of the Companies Act. It needs the partners' consent, no-objection from creditors, a newspaper notice, name approval and filings with the Registrar, with the new company taking over the LLP's assets and liabilities. There are eligibility conditions to check first, including at least two partners, and tax consequences worth planning for rather than discovering.
Allow two to three months, comfortably. Done ahead of a fundraise, it is routine administration. Attempted after a lands, it becomes the reason the round slips, and slipping for a structural reason is a bad look at exactly the wrong moment.
The signal to start is a serious investor conversation, or an imminent hire who will expect equity. Not the arrival of the term sheet.
Foreign companies setting up in India
Three routes, with very different obligations:
- Wholly owned subsidiary. An Indian company owned by the foreign parent. Full operating freedom, full Indian compliance, and foreign investment reporting on each infusion. This is what most foreign businesses eventually want.
- Branch office. An extension of the foreign company rather than a separate entity. It needs approval, can undertake only permitted activities, and the parent carries the liability.
- Liaison office. Representation only: market research, promotion, acting as a communication channel. It cannot earn revenue. Companies routinely drift into commercial activity through a liaison office, which is a serious compliance problem when discovered.
Choose on whether you intend to earn revenue in India. If yes, it is a subsidiary.
Multiple entities: usually a tax idea, eventually a diligence problem
Group structures get created for sensible-sounding reasons: separating a risky line, a tax view, keeping intellectual property apart, a state subsidy. What we find later:
- Staff employed by one entity working for another, with no agreement
- Costs borne by one and revenue booked in another, with no transfer pricing basis
- Intellectual property owned by an entity that is not the one being invested in
- Inter-company balances nobody can explain
- One entity properly maintained and the others quietly non-compliant
Each entity is a separate compliance burden, a separate set of filings and a separate thing to explain. Investors generally dislike group structures they did not design, and diligence on four entities costs four times as much in time.
The test before adding an entity: is there a specific, current reason that a division, a separate bank account or a contract within one company cannot meet? If not, do not create it. And moving your holding company abroad is a bigger decision than a structural one.
Closing a company properly
Abandoning an entity is not closing it.
If a company stops trading and nobody files, the obligations continue. Penalties accrue per form, per year, on the company and on the directors personally. After three continuous financial years without or annual returns, the directors are disqualified for five years, across every company they are involved in. That is how a company you stopped caring about in 2019 blocks filings for the one you run today.
There is a proper route. Where a company has no liabilities and meets the conditions, a strike-off application under section 248 removes it from the register. An LLP closes through Form 24. Either way the filings have to be brought current first, which is the part people are trying to avoid, but it is cheaper now than after another two years of accrual.
An old entity you have stopped thinking about is not neutral. Deal with it this quarter.
A short decision path
- Will you raise equity or give equity to a team? Yes: a private limited company. Stop here.
- Will you take foreign investment? Yes: a private limited company, and check your sector's position before you incorporate.
- Neither, and it is a steady business? An LLP, unless you want the optionality.
- Single founder, no plans to raise, wants a company? An OPC, knowing it ends when a second shareholder arrives.
- Already an LLP and now thinking about raising? Start conversion three months before you need it.
- Have an entity you no longer use? Close it properly, this quarter.
Frequently asked questions
Should a startup register as a private limited company or an LLP?
A private limited company, if there is any intention to raise outside equity or give employees options, because an LLP cannot issue shares, options or convertible instruments. An LLP suits practices, services businesses and family operations funded from cash flow.
Can an LLP be converted into a private limited company?
Yes, under section 366 of the Companies Act, with partner consent, creditor no-objection and filings with the Registrar. Allow two to three months, and start before a term sheet arrives.
What happens if you stop filing for a company you no longer use?
The filings and penalties continue regardless of activity, and three continuous years without filing disqualifies the directors for five years. A strike-off application closes it properly.
To see what your chosen structure owes each month, use the compliance calendar. If you are weighing a conversion or a group clean-up, our compliance and governance work starts with the entities you already have.
Current as at September 2026. Thresholds, eligibility conditions and foreign investment rules change. This is general guidance, not legal or tax advice: take advice on your own situation.
How useful was this article?
One tap. It tells us what to write more of.
About the author
Lead - Company Secretarial, Compliance & Fundraise Advisory
Everything Manavi has writtenLinkedInThe next one
Get what we publish next, by email.
Working notes on raising, borrowing, protecting, growing and structuring capital in India. One email a week at most, and you can leave any time.
We use your address only to send this. See our privacy policy.
We store your address to send you these emails and nothing else. See our privacy policy.