Sole proprietorship business is the oldest form of business, and the simplest form in which the business can be carried out. Most of the businesses in India are carried out under sole proprietorship. We can call this form of business as unorganised sector, as no sufficient information is available from the government for making policy decisions.

Tax Rate: Same as Individual Slab – 5%, 20%, 30% etc.

Compliances: Income Tax and GST Returns filing + Other Sector Compliance if any

Pros: Lowest compliance among all forms of businesses, no registration required for commencement of business, after reaching the turnover limits GST registrations will become mandatory.

Cons: Unlimited liability! in case of any adverse situation, the personal estate of the proprietor will be liable for settlement. Least preference for tendering and other processes as compared to other forms of business. Creating an international profile will be more challenging compared to other forms of businesses.

Partnership set-up is quite popular in India, you may notice many old businesses still run the form of a partnership. In India, registering a partnership is not mandatory, however, not registering a partnership does not provide legal teeth to the partnership firm. If a Partnership firm is not registered in India, it can carry on business, However, it can sue third part or other partners for a value more than Rs 100! However, third parties can sue the partnership firm whether registered or not.

A Partnership will have to be registered with the jurisdictional Registrar of Firms in prescribed form and fees.

Compliances: Income Tax, GST, Partnership Filings with Registrar of Firms, Regulatory Compliances if any

Pros: With partnership, the pooling of capital is higher compared to sole proprietorship. With higher capital, firms can engage in more capital-intensive businesses with risk and rewards shared among partners. Compliance cost will be like that of sole proprietorship.

Cons: Unlimited liability, personal assets of the partnership will be held liable of the assets of the partnership is insufficient to meet the obligations. Tax is payable @ 30%, highest amount all business forms in India.

Limited liability partnership is one of the latest forms of business, it combines the flexibility of partnership with limited liability of a body corporate.

Pros: Limited Liability! Unlimited partners, two or more body-corporate or foreign firms can also form an LLP. Unlimited number of partners, the business can be scaled up to any size. Ideal form of business for professionals such as architects, CAs, CS where the potential for personal liability is higher.

Cons: no separation between investment and administration of the LLP, the owners and administrations are the same. The cost of managing LLP is higher than sole proprietorship and registered partnership firm. Audit of accounts of LLP mandatory if capital investment is above 25 lakh rupees of turnover for financial year crosses rupees forty lakhs in a financial year.

Tax: 30% – like registered partnership firms

Compliances: MCA Compliance, Income Tax, GST, Sectoral Compliance if any

One person company can be called as the corporate form of sole proprietorship, most suitable for a solopreneur who wants to scale up business to serve global customers.

Tax Rate: 30%

Pros: Limited liability! Corporate Identity without sharing ownership and rewards, suitable for freelancers and consultants.

Cons: Cannot seek investment from investors as this is one person company. Compliance burden is like that of a private limited company. The cost of Non-Compliance is similar to that of a private limited company. Audit of OPC is mandatory irrespective of turnover or capital. The cost of managing an OPC is higher than sole proprietorship, partnership, and LLP.

Compliances: MCA Compliance, Income Tax, GST, Sectoral compliance if any.

Most popular corporate form of business among Indian start-ups who want to seek investment from VCs, Angels as investors and not dilute equity ownership of founding team.

Pros: Limited Liability! Scope of different forms of capital and investment with or without equity dilution. Allotment of stock options for employees, issue debenture instruments, issue of preference capital, convertible instruments etc. Ownership is separated from management, can appoint professional directors without the need to offer equity of the company.

Cons: Compliance burden is highest compared to other forms of businesses discussed above. Auditing accounts is mandatory. The cost of managing a private limited company is most expensive as compared to other forms of businesses discussed above, however compared to the benefits, the cost is manageable.

Tax: 15%, 22% and 25% depending on the criteria of the company.

Compliance: MCA Filing, Income Tax, GST, other sectoral filings if any