THE PRACTICAL

START-UP
GUIDEBOOK
Find the legal structure that suits

your business

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Contents

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The Practical Start-up Guidebook

Introduction

03

Comparison Criteria

04

Private Limited Company

09

Limited Liability Partnership

13

One-Person Company

17

General Partnership

21

Sole Proprietorship

25

PARTNER, DIRECTOR OR PROPRIETOR?

ITS EASIER THAN IT SEEMS

It should take no longer than 5 minutes to choose between the available legal structures for your business. Your
options are the Private Limited Company, Limited Liability Partnership (LLP), One-Person Company (OPC), General
Partnership and Sole Proprietorship. But the general approach to this decision is so academic, entrepreneurs end up
wasting their time. Theres no need to educate yourself on the minute differences between say, a Private Limited
Company and an LLP. This is because, with only a few exceptions, every business will be suited to just one legal
structure. For example, theres no need for the founder of a tech start-up to know the tax benefits of an LLP if it
doesnt allow outside funding to be raised, is there?
All you need to do is match the needs of your business with the 4 simple questions weve answered in this e-book.
So long as youre clear of your current financial capacity and have given thought to your long-term goals, you
should be ready to get started immediately. Do, however, take the time to find out more about your chosen
business structure. All this information follows the comparisons. They should answer all your questions.
Nonetheless, if you have any questions, feel free to mail us at support@vakilsearch.com.

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03

WHOSE FUNDING NEEDS

DOES IT SUPPORT?
PRIVATE LIMITED COMPANY
For start-ups looking to build a
scalable business by raising equity,
this is the only option. Investors
are likely to demand conversion to
this structure before investing.

ONE-PERSON COMPANY
Pick it if youre a single promoter
planning to run the business with
no outside funding or debt alone.
However, OPCs need to be
converted to private limited
companies once they reach a
turnover of Rs. 2 crore. So if youre
aiming to run a large business, stay
away.

LIMITED LIABILITY PARTNERSHIP

For professional services firms that can
manage on debt. Private Equity funds
and Venture Capitalists are unlikely to
invest as it would require them to
become partners.

PARTNERSHIP FIRM
Small merchants and traders
requiring no external funding can
opt for this. The partners are, after
all, personally liable for all debts the
SOLE PROPRIETORSHIP
Only small merchants and traders requiring no partnership cannot pay itself.
external funding should opt for this. The
proprietor is, after all, personally liable for all
debts the business cannot pay itself.

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WHAT WILL BE MY
START-UP COSTS?
PRIVATE LIMITED COMPANY
A relatively expensive option,
with registration costs starting
at Rs. 16,000 and minimum
paid-up capital of Rs. 1 lakh. It
takes 20 to 25 days to
incorporate.
ONE-PERSON COMPANY
Marginally cheaper than the
Private Limited Company, with
registration costs starting at
Rs. 15,000 and minimum
paid-up capital of Rs. 1 lakh.
This will also take 20 to 25 days
to incorporate.

LIMITED LIABILITY PARTNERSHIP

Substantially cheaper than the Private
Limited Company, with just
registration costs of Rs. 11,000. Theres
no paid-up capital.

SOLE PROPRIETORSHIP
Your start-up costs are only what it costs to get
the license/s you need (Sales Tax registration,
for example). These start at Rs. 5000.

PARTNERSHIP FIRM
If you choose not to register the
parternship deed, you can get
started at just Rs. 1999. With
registration, it would work out to
Rs. 10,000, same as the LLP.

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WHAT ARE THE

MANDATORY COMPLIANCES?
PRIVATE LIMITED COMPANY
LIMITED LIABILITY PARTNERSHIP
All such businesses must maintain
books of accounts, comply with
statutory audit requirements (if
turnover exceeds Rs. 40 lakh or capital
contribution exceeds Rs. 25 lakh) and
submit income tax returns and annual
filings with the RoC.

All such businesses must maintain

books of accounts, comply with
statutory audit requirements and submit
income tax returns and annual filings
with the Registrar of Companies (RoC).
ONE-PERSON COMPANY
All such businesses must maintain
books of accounts, comply with
statutory audit requirements and
submit income tax returns and
annual filings with the RoC.
SOLE PROPRIETORSHIP

PARTNERSHIP FIRM
All such businesses must maintain
books of accounts, comply with
tax audit requirements (if turnover
exceeds Rs. 1 crore) and submit
income tax returns.

It is advisable (but not necessary) for sole

proprietorships to maintain books of accounts.
Filing of returns is mandatory.

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WHAT ARE THE

TAX ADVANTAGES?
PRIVATE LIMITED COMPANY
No general advantages
(industry-specific advantages are
available). Tax to be paid at flat rate
of 30% on profits, Dividend
Distribution Tax (DDT) applies, as
does Minimum Alternate Tax (MAT).
ONE-PERSON COMPANY
No general advantages
(industry-specific advantages
are available). Tax to be paid at
flat rate of 30% on profits, DDT
applies, as does Minimum
Alternate Tax (MAT).

SOLE PROPRIETORSHIP
Individual slab rates would be applicable.
Option to declare profits at 8% of revenue
when turnover is less than Rs. 1 crore.

LIMITED LIABILITY PARTNERSHIP

No general advantages
(industry-specific advantages are
available). Tax to be paid at flat
rate of 30% on profits. However,
MAT is applicable. DDT does not
apply. Wealth tax is also not
applicable.
PARTNERSHIP FIRM
Taxed at 30%. Remuneration
paid to partners can be
claimed as deduction,
restricted to the limits
specified (under the IT Act).
MAT does not apply.

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WILL THE BUSINESS SURVIVE THE

DEPARTURE OF A PROMOTER?
PRIVATE LIMITED COMPANY
Yes, of course. So long as there are a
minimum of 2 directors and
shareholders, the business can go on.
This is because a private limited
company has a separate legal
existence.

LIMITED LIABILITY PARTNERSHIP

Yes. An LLP has a legal existence
independent of its partners. There
must be a minimum of 2
directors. There is no limit to the
number of partners.

ONE-PERSON COMPANY
Yes. All OPCs must appoint a
nominee director. In case of the
death of the original director,
the nominee director takes
over the business.
SOLE PROPRIETORSHIP
The Sole Proprietorship is totally reliant on the
involvement of the proprietor. It will not survive
his/her departure.

PARTNERSHIP FIRM
No. The departure of a partner
would bring an end to the
Partnership Deed. There must be
a minimum of 2 partners. There
can be a maximum of 15
partners.

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Private Limited Company, the most popular legal structure for

businesses, should be chosen by anyone looking to build a
scalable business. Start-ups and growing companies pick it
because it allows outside funding to be raised easily, limits the
liabilities of its shareholders and enables them to offer employee stock options to attract top talent. As these entities
must hold board meetings and file annual returns with the
Ministry of Corporate Affairs (MCA), they tend to be viewed
with more credibility than an LLP or General Partnership.

PRIVATE LIMITED COMPANY

Business Registration Guidebook

09

Advantages
Limited Liability: Businesses often need to borrow

Better Debt-raising Capacity: A private limited

money. In structures such as General Partnership,

company has more options for taking on debt than

partners are personally liable for all the debt raised. So if it

LLPs. Not only are bank loans easy to obtain (relative to OPCs

cannot be repaid by the business, the partners would have to

and LLPs), the option of issuing debentures and convertible

sell their personal possessions to do so. In a private limited

debentures are available to it.

company, only the amount invested in starting the business

would be lost; the directors' personal property would be safe.

More Credibility: The private limited company

structure lends credibility to the business, on account

Investment-ready: Private limited companies easily

of the compliances that are necessary from the very

accommodate equity funding as there is a clear

beginning. On the other hand, several compliances for an LLP,

distinction between shareholders and directors as

such as appointment of an auditor, kick in only after its

well as limited liability. In fact, venture capitalists and private

turnover crosses a certain amount, while many are not

equity funds are unlikely to invest in any other structure. This

required at all.

is because LLPs would require them to become partners in the

business, while an OPC can have only one shareholder.

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Procedure
A private limited company takes up to 25 days to incorporate,
depending on whether you have your documents in order, the

Final Incorporation
As soon as weve the DSC, we will ask you for the

workload of the MCA and much else. You will be informed of

unique name you wish to give your company (we can help you

the various scanned documents you would need to provide

find the right combination). We will also require some

over the course of the process by our representatives.

information, signatures and scanned documents regarding

DSC Application
All the proposed directors in the company need a

the proposed company and its directors to complete the

necessary submissions, including INC-29 and the
Memorandum and Articles of Association. At this stage, you

Digital Signature Certificate (DSC), which is necessary for filing

will also need to pay government fees for form filing and

forms at the next stage. You will only need to provide a few

stamp duty. You will receive the Certificate of Incorporation,

scanned documents and details; our representatives will

Permanent Account Number and Tax Account Number, as well

ensure the forms are correctly filled.

as ESIC registration by the end of this process.

Time to Complete: 1 to 3 days

Time to Complete: 5 to 15 working days

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FAQS
Q: Do I need to be physically present during
this process?

Q: What is a DSC?

A: No, as all documents are filed electronically, you

authorities (TCS and n-Code are two of them) by which

would not need to be physically present at all. You

you can sign electonic documents. As all documents

would need to send us scanned copies of all the

needed are electronic, partners need a DSC.

A: The DSC is an instrument issued by certifying

required documents.

Q: How many directors and shareholders are

permissible?

Q: Does a private limited company have

continuous existence?
A: Yes, so long as the annual compliances are met, the

A: A minimum of two and maximum of 15 directors.

private limited company will continue to exist. If you

There can be anywhere from two to 50 shareholders.

do not comply with the requirements, it will go

dormant, until it is struck off the register altogether.

Q: What documents are required to complete

the process?

Q: How do I pick a name for my company?

A: All directors must provide identity and address

A: You need to first ensure that your name has not

proof, as well as a copy of the PAN Card (for Indian

already been taken. This can be done by checking the

Nationals) and Passport (for foreign nationals).

MCA website. However, if you're going to register the

No-Objection Certificate must be submitted by the

brand name, also check if it has already been

owner of the registered office premises.

trademarked. While framing your name, ensure that it

has a unique component that you coin and a
descriptive one that specifies the business youre in.
12

Limited Liability Partnership (LLP), introduced only in 2008, has

quickly become a popular legal structure for businesses. Its main
improvement over the General Partnership is that, as the name
indicates, it limits the liabilities of its partners to their contributions to the business and also offers each partner protection from
the negligence, misdeeds or incompetence of the other partners.
The LLP is also cheaper to incorporate than a private limited company, requires fewer compliances and can be a smart choice from
a tax perspective. However, if you're looking to raise venture capital or attract talent with employee stock options, private limited
is the way to go as LLPs cannot easily accommodate it.
This is why they are most popular with professional services firms
(web designers or architects, for example) that require no equity
funding. That said, it is not entirely uncommon for start-up founders to first register an LLP and convert it to a private limited company immediately before funding is raised.

LIMITED LIABILITY
PARTNERSHIP
Business Registration Guidebook

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Advantages
Limited Liability: Businesses often need to borrow

Reduced Compliance: An LLP only requires

money. In a General Partnership, partners are

audited annual returns to be filed if it has a turnover

personally liable for all this debt. So if it cannot be repaid by

of greater than Rs. 40 lakh or capital contribution of over Rs.

the business, the partners would have to sell their personal

25 lakh. It also needs to communicate fewer business

possessions to do so. In an LLP, only the amount invested in

transactions and structural changes than a private limited

starting the business would be lost; all personal property

company.

would be safe.

CHEAP

Relatively Cheap: If you're bootstrapping, you may

be interested in knowing that an LLP has no

authorised capital (minimum of Rs. 1 lakh for a private limited

Tax Advantages: There are some important

advantages over the private limited company. For

example, Dividend Distribution Tax and tax surcharge don't

apply. Loans to partners are also not taxable as income.

company), significantly lowering the cost of registration.

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Procedure
The LLP incorporation procedure takes 20 to 35 days to

LLP Registration
During the final process, you would need to submit

complete, depending on whether you have your documents

in order and the workload of the Ministry of Corporate Affairs

various documents relating to all the partners in the business

(MCA). You will be informed of the various scanned

and a No-Objection Certificate from the property's owner. We

documents you would need to provide.

will prepare all of the forms and submit them to the MCA,

DSC & DPIN Applications

All the proposed partners need a Digital Signature

Certificate (DSC), which is necessary to get them a Digital

Partner Identification Number (DPIN). You will only need to

which will take up to 15 days to verify them. All you need to do

is provide us with the information, signatures and scanned
documents relating to the LLP and its partners.
Time Required: 5 to 15 working days

provide a handful of scanned documents; our representatives

PAN & TAN Applications

will ensure the forms are correctly filled.

Time Required: 4 to 6 days
2

LLP Name Approval

The unique name you wish to give your LLP should

be available and pass the naming guidelines provided by the

MCA. Our experienced officers will give you all the help you
need in finding the right combination.

Every company needs a registered Permanent

Account Number (PAN) and Tax Account Number

(TAN). We will make the application online ourselves, but you

will need to courier hard copies of the required documents
yourself. Both will be couriered to the your registered office
address in 7 working days.
Time to Complete: 7 working days

Time Required: 2 to 7 working days

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FAQS
Q: Do I need to be present in person during
this process?

Q: Does an LLP have continuous existence?

A: No, as all documents are filed electronically, you

LLP will continue to exist. If you do not comply with

would not need to do so at all.

the requirements.

Q: How many partners are permissible?

Q: How do I pick a name for my LLP?

A: There is no maximum number, but you, of course,

A: You need to first ensure that your name has not

need a minimum of 2 to form the partnership.

already been taken. This can be done by checking the

A: Yes, so long as the annual compliances are met, the

MCA website. If you are disappointed that a preferred

Q: Can a foreign national be a partner?

name is taken, do remember that the name of your

A: So long as one of the partners is an Indian citizen,

concern doesn't have to be your brand name.

others can be foreign nationals.

However, if you're going to register the brand name,

also check if it has already been trademarked. While

Q: What is DSC and DPIN?

framing your name, please ensure that it has a unique

A: The DSC is an instrument issued by certifying

component that you coin and a descriptive

authorities by which you can sign electonic

component that specifies the business youre in.

documents. The DPIN is a unique identification

number for an existing partner or a person intending
to become one. A partner can have only one DPIN.

16

The One Person Company (OPC) constitution was recently

introduced as a strong improvement over the sole
proprietorship. It gives a single promoter full control over the
company while limiting his/her liability to contributions to the
business. This person will be the only director and shareholder
(there is a nominee director, but with no power until the
original director is incapable of entering into contract). So
there's no chance of raising equity funding or offering
employee stock options. Furthermore, if an OPC hits a
turnover of over Rs. 2 crore or has a paid-up capital of over Rs.
50 lakh, it must be turned into a private or public limited
company within 6 months.

ONE PERSON COMPANY

Business
Business
Registration
Registration
Guidebook
Guidebook

17

Advantages
Limited Liability: Businesses often need to borrow

Fewer Compliances: An OPC does not need to file

money. In structures such as the Sole Proprietorship,

audited statement of accounts with the MCA and as

proprietors are personally liable for all this debt. So if it cannot

few as three compliance-related forms to file on an annual

be repaid by the business, the proprietor would have to sell

basis.

his/her car, house or jewellery to do so. In an OPC, only the

amount invested in starting the business would be lost; all
personal property would be safe.

Continuous Existence: If a promoter were to operate as a

Sole Proprietorship, rather than an OPC, the business
would come to an end on his/her death. As an OPC
has a separate legal identity, it would pass on to the nominee
director and, therefore, continue to exist

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Procedure
The OPC procedure takes up to 25 days to complete. You will
be informed of the various scanned documents you would

Final Incorporation
As soon as weve the DSC, we will ask you for the

need to provide over the course of the process by our

unique name you wish to give your company (we can help you

representatives. Here is a snapshot of the process:

find the right combination). We will also require some

information, signatures and scanned documents regarding

DSC Application
The proposed director needs a Digital Signature

Certificate (DSC), which is necessary for filing forms at the next

stage. You will only need to provide a few scanned documents
and details; our representatives will ensure the forms are
correctly filled.
Time to Complete: 1 to 3 days

the proposed company and its directors to complete the

necessary submissions, including INC-29 and the
Memorandum and Articles of Association. At this stage, you
will also need to pay government fees for form filing and
stamp duty. You will receive the Certificate of Incorporation,
Permanent Account Number and Tax Account Number, as well
as ESIC registration by the end of this process.
Time to Complete: 5 to 15 working days

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FAQS
Q: Do I need to be present in person during
this process?

Q: How do I pick a name for my company?

A: No, as all documents are filed electronically, you

already been taken. This can be done by checking the

would not need to do so at all. You would need to send

MCA website. Do note that the name of your concern

us scanned copies of all the required documents. We

doesn't have to be your brand name. However, if you're

may, however, ask for hard copies of some documents,

going to register the brand name, also check if it has

too, with the necessary attestations.

already been trademarked. While framing your name,

A: You need to first ensure that your name has not

please ensure that it has a unique component that you

Q: Will I get a printed incorporation certificate

from the Government?

coin and a descriptive component that specifies the

business youre in.

A: No, the procedure has been completely digital these

days and the Government does not issue a printed
copy. They will send you a soft copy which you can
print out if you wish.

Q: Does an OPC have continuous existence?

A: Yes, so long as the annual compliances are met, the
OPC will continue to exist. If you do not comply with
the requirements, the OPC will go dormant, until it is
struck off the register altogether.

20

A General Partnership is a business structure in which two or

more individuals manage and operate a business in
accordance with the terms and objectives set out in the
Partnership Deed. This structure is thought to have lost its
relevance since the introduction of the LLP because its
partners have unlimited liability, which means they are
personally liable for the debts of the business. However, low
costs, ease of setting up and minimal compliance requirement
make it a sensible option for some, such as home businesses
that are unlikely to take on any debt. Registration is optional
for General Partnerships.

GENERAL PARTNERSHIP
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Advantages
Minimal Compliance: General Partnerships do not

Relatively Inexpensive: A General Partnership is

need to appoint an auditor or, if unregistered, even

cheaper to start than an LLP and even over the

file annual accounts with the registrar. Annual compliances are

long-term, thanks to the minimal compliance requirements, is

also fewer as compared to an LLP. General Partnerships do

inexpensive. You would not need to hire an auditor, for

need to file Income Taxes and, depending on turnover, service

example. This is why, despite its severe shortcoming

and sales tax.

(unlimited liability), home businesses may opt for it.

Easy to Start: It can be started with just an

unregistered Partnership Deed in 2 to 4 days at Rs.
1,999; registration is, however, a wise choice. It would enable
you to file suits in court against another firm or partners in the
firm for the enforcement of rights arising from a contract or
right given by the Partnership Act.

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Procedure
The General Partnership process is straightforward and, if
you're prompt with your submissions, can be completed in
five days. This is, however, dependent on a few things, such as
whether or not you want your business registered and
availability of stamp paper.

Partnership Deed Registration (Optional)

We will appoint an affiliate to take you through the

process. All the partners would need to go to the registrar's

office and bring along a passport-sized photograph and
identity and address proofs.
Time to Complete: 1 working day

Partnership Deed Drafting

We will collect all the information regarding your

business and its partners. The information will be used by our

lawyers to draft a partnership deed covering the various
aspects of the business on stamp paper (charged as per
actuals).
Time to Complete: 2 to 10 working days

PAN & TAN Applications

Every partnership, registered or unregistered, needs

a Permanent Account Number (PAN) and Tax Account Number

(TAN). We will make the application online ourselves, but you
will need to courier hard copies of the required documents
yourself. You will receive the PAN and TAN at the address
mentioned in the deed.
Time to Complete: 7 working days

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FAQS
Q: Do I need to be present in person during
this process?

Q: Can a General Partnership have an investor?

A: Drafting is done online, but you and the other

residing in India. It may be done without any approval.

partners need to be present at the Registrar's Office if

Such an investor can even be classified as a limited

you wish to register the Partnership Deed.

partner, which would excuse him/her from

A: Yes, but only so long as he is an Indian citizen

participating in business activities, thereby limiting his

Q: How many partners are permissible in an

LLP?

liability.

A: A General Partnership permits a minimum of two

Q: Can I convert my Partnership into an LLP or

Private Limited Company?

and maximum of 20 partners.

A: Yes, you can, but this is a tedious and expensive

Q: Can a foreign national be a partner?

procedure. It may be better to close the partnership

A: No, partners must be Indian citizens residing in

altogether and then start afresh as an LLP or Private

India.

Limited Company.

Q: Is there a minimum amount of capital

required?
A: Not at all. You can even start with Rs. 100, if you
wish.

24

A sole proprietorship is a business that is owned and managed

by a single person. You could have one up and running within
10 days, which makes it very popular among the unorganised
sector, particularly small traders and merchants. There is no
such thing as registration; proprietorships are recognised by
other registrations, such as a service or sales tax registration.
As you would imagine with a business thats so easy to set up,
though, its shortcomings are severe: the liability of the
proprietor is unlimited and it does not have a continuous
existence. For these reasons, it should only be considered by
small merchants and traders.

SOLE PROPRIETORSHIP
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25

Advantages
Minimal Compliance: Sole Proprietorships are only

Relatively Inexpensive: A Sole Proprietorship is

recognised via their government and tax registrations,

inexpensive as compared to a One Person Company

so the extent of their compliance is limited to the annual filing

and, thanks to the minimal compliance requirements, is

of their service, professional or sales taxes.

inexpensive even over the long-term. You would not need to

hire an auditor, for example. This is why, despite its severe
shortcoming (unlimited liability), small merchants and traders

Easy to Start: A sole proprietorship could take as few as

opt for it.

seven days if all you need is a Service Tax Registration,

but this would stretch to 30 days if you need Sales Tax
Registration. Either way, the process is uncomplicated.
PAN card and identity and address proofs are usually enough
to get this done.

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Procedure
Proprietorship is recognised through one or more government
registrations. Our representatives will advise you about the

Begin Procedure
Once you've decided what you want, we'll ask you for

ones you will need based on the business you're in, and

the documents we need to get started. In most cases, you

inform you of the documents you would need to provide in

would first need to provide address and identity proof as well

each case. Here is a snapshot of the process:

as a scanned copy of a passport-sized photograph. Some

registrations (Sales Tax, for example) involve an inspection by
the concerned government agency. We will assist you

Select Registration
We will help you decide what registration you need,

whether service tax, sales tax, import/export code, MSME

throughout the process until you receive the required

registration.
Time to Complete: Depends on selected service

registration or Shops and Establishments registration.

Time to Complete: Less than a day

Get a TAN
A proprietor would need a Tax Account Number

(TAN) if he is going to pay salaries and rent. We will make the

application online ourselves, but you will need to courier hard
copies of the required documents yourself to the government
office. You will receive the TAN at the registered address within
7 working days.
Time to Complete: 7 working days

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FAQS
Q: Who can be a proprietor?
A: Only Indian citizens residing in India can be sole

Q: Can I convert my proprietorship to a private

limited company or LLP?

proprietors.

A: No, you can't. You would have to close the

proprietorship altogether and then start afresh as a

Q: Can I open a bank account specifically for

the proprietorship?

One-Person Company, LLP or Private Limited

Company.

A: Yes, you can. To do so, you would need to provide

two of the recognised government registrations, such
as sales or service tax registration, MSME registration
and Shops & Establishments Act registration. PAN card
would also be necessary.

Q: Will I receive a certificate of incorporation?

A: Sole proprietorships are never incorporated. They
are instead recognised by the government via various
registrations. Therefore, you would not receive such a
certificate.

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