THE PRACTICAL

START-UP
GUIDEBOOK
Find the legal structure that suits
your business

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 Contents

Introduction 03

Comparison Criteria 04

Private Limited Company 09

Limited Liability Partnership 13

One-Person Company 17

General Partnership 21

Sole Proprietorship 25

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The Practical Start-up Guidebook

 PARTNER, DIRECTOR OR PROPRIETOR?
IT’S 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. There’s 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, there’s no need for the founder of a tech start-up to know the tax benefits of an LLP if it
doesn’t 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 we’ve answered in this e-book.
So long as you’re 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, LIMITED LIABILITY PARTNERSHIP
this is the only option. Investors For professional services firms that can
are likely to demand conversion to manage on debt. Private Equity funds
this structure before investing. and Venture Capitalists are unlikely to
invest as it would require them to
become partners.
ONE-PERSON COMPANY
Pick it if you’re a single promoter
planning to run the business with PARTNERSHIP FIRM
no outside funding or debt alone. Small merchants and traders
However, OPCs need to be requiring no external funding can
converted to private limited opt for this. The partners are, after
companies once they reach a SOLE PROPRIETORSHIP all, personally liable for all debts the
turnover of Rs. 2 crore. So if you’re
Only small merchants and traders requiring no partnership cannot pay itself.
aiming to run a large business, stay
external funding should opt for this. The
away.
proprietor is, after all, personally liable for all
debts the business cannot pay itself.
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The Practical Start-up Guidebook 04

 WHAT WILL BE MY
START-UP COSTS?
PRIVATE LIMITED COMPANY
A relatively expensive option,
with registration costs starting LIMITED LIABILITY PARTNERSHIP
at Rs. 16,000 and minimum Substantially cheaper than the Private
paid-up capital of Rs. 1 lakh. It Limited Company, with just
takes 20 to 25 days to registration costs of Rs. 11,000. There’s
incorporate. no paid-up capital.

ONE-PERSON COMPANY
Marginally cheaper than the
Private Limited Company, with PARTNERSHIP FIRM
registration costs starting at If you choose not to register the
Rs. 15,000 and minimum parternship deed, you can get
paid-up capital of Rs. 1 lakh. started at just Rs. 1999. With
This will also take 20 to 25 days SOLE PROPRIETORSHIP registration, it would work out to
to incorporate. Rs. 10,000, same as the LLP.
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.

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The Practical Start-up Guidebook 05

 WHAT ARE THE
MANDATORY COMPLIANCES?
PRIVATE LIMITED COMPANY
LIMITED LIABILITY PARTNERSHIP
All such businesses must maintain
books of accounts, comply with All such businesses must maintain
statutory audit requirements and submit books of accounts, comply with
income tax returns and annual filings statutory audit requirements (if
with the Registrar of Companies (RoC). turnover exceeds Rs. 40 lakh or capital
contribution exceeds Rs. 25 lakh) and
submit income tax returns and annual
ONE-PERSON COMPANY
filings with the RoC.
All such businesses must maintain PARTNERSHIP FIRM
books of accounts, comply with
All such businesses must maintain
statutory audit requirements and
books of accounts, comply with
submit income tax returns and
tax audit requirements (if turnover
annual filings with the RoC.
exceeds Rs. 1 crore) and submit
SOLE PROPRIETORSHIP 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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The Practical Start-up Guidebook 06

 WHAT ARE THE
TAX ADVANTAGES?
PRIVATE LIMITED COMPANY
No general advantages LIMITED LIABILITY PARTNERSHIP
(industry-specific advantages are No general advantages
available). Tax to be paid at flat rate (industry-specific advantages are
of 30% on profits, Dividend available). Tax to be paid at flat
Distribution Tax (DDT) applies, as rate of 30% on profits. However,

$
does Minimum Alternate Tax (MAT). MAT is applicable. DDT does not
apply. Wealth tax is also not
ONE-PERSON COMPANY
applicable.
No general advantages
(industry-specific advantages
$ PARTNERSHIP FIRM
are available). Tax to be paid at Taxed at 30%. Remuneration
flat rate of 30% on profits, DDT paid to partners can be
applies, as does Minimum claimed as deduction,
Alternate Tax (MAT). restricted to the limits
SOLE PROPRIETORSHIP specified (under the IT Act).
MAT does not apply.
Individual slab rates would be applicable.
Option to declare profits at 8% of revenue
when turnover is less than Rs. 1 crore.

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The Practical Start-up Guidebook 07

 WILL THE BUSINESS SURVIVE THE
DEPARTURE OF A PROMOTER?
PRIVATE LIMITED COMPANY
Yes, of course. So long as there are a LIMITED LIABILITY PARTNERSHIP
minimum of 2 directors and Yes. An LLP has a legal existence
shareholders, the business can go on. independent of its partners. There
This is because a private limited must be a minimum of 2
company has a separate legal directors. There is no limit to the
existence. number of partners.
ONE-PERSON COMPANY
Yes. All OPCs must appoint a
nominee director. In case of the PARTNERSHIP FIRM
death of the original director, No. The departure of a partner
the nominee director takes would bring an end to the
over the business. Partnership Deed. There must be
a minimum of 2 partners. There
SOLE PROPRIETORSHIP can be a maximum of 15
partners.
The Sole Proprietorship is totally reliant on the
involvement of the proprietor. It will not survive
his/her departure.

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The Practical Start-up Guidebook 08

 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 em-
ployee 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
money. In structures such as General Partnership,
partners are personally liable for all the debt raised. So if it
cannot be repaid by the business, the partners would have to
sell their personal possessions to do so. In a private limited
company, only the amount invested in starting the business
would be lost; the directors' personal property would be safe.
Investment-ready: Private limited companies easily
accommodate equity funding as there is a clear
distinction between shareholders and directors as
well as limited liability. In fact, venture capitalists and private
equity funds are unlikely to invest in any other structure. This
is because LLPs would require them to become partners in the
business, while an OPC can have only one shareholder.
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Better Debt-raising Capacity: A private limited
company has more options for taking on debt than
LLPs. Not only are bank loans easy to obtain (relative to OPCs
and LLPs), the option of issuing debentures and convertible
debentures are available to it.
More Credibility: The private limited company
structure lends credibility to the business, on account
of the compliances that are necessary from the very
beginning. On the other hand, several compliances for an LLP,
such as appointment of an auditor, kick in only after its
turnover crosses a certain amount, while many are not
required at all.
10
Procedure
A private limited company takes up to 25 days to incorporate,
depending on whether you have your documents in order, the
workload of the MCA and much else. You will be informed of
the various scanned documents you would need to provide
over the course of the process by our representatives.
DSC Application
1
All the proposed directors in the company need 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
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2 Final Incorporation
As soon as we’ve the DSC, we will ask you for the
unique name you wish to give your company (we can help you
find the right combination). We will also require some
information, signatures and scanned documents regarding
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
11
 FAQS
Q: Do I need to be physically present during
this process?
A: No, as all documents are filed electronically, you
would not need to be physically present at all. You
would need to send us scanned copies of all the
required documents.
Q: How many directors and shareholders are
permissible?
A: A minimum of two and maximum of 15 directors.
There can be anywhere from two to 50 shareholders.
Q: What documents are required to complete
the process?
A: All directors must provide identity and address
proof, as well as a copy of the PAN Card (for Indian
Nationals) and Passport (for foreign nationals).
No-Objection Certificate must be submitted by the
owner of the registered office premises.
Q: What is a DSC?
A: The DSC is an instrument issued by certifying
authorities (TCS and n-Code are two of them) by which
you can sign electonic documents. As all documents
needed are electronic, partners need a DSC.
Q: Does a private limited company have
continuous existence?
A: Yes, so long as the annual compliances are met, the
private limited company will continue to exist. If you
do not comply with the requirements, it will go
dormant, until it is struck off the register altogether.
Q: How do I pick a name for my company?
A: You need to first ensure that your name has not
already been taken. This can be done by checking the
MCA website. However, if you're going to register the
brand name, also check if it has already been
trademarked. While framing your name, ensure that it
has a unique component that you coin and a
descriptive one that specifies the business you’re 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 contribu-
tions 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 com-

pany, requires fewer compliances and can be a smart choice from
a tax perspective. However, if you're looking to raise venture capi-
tal 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 found-
ers to first register an LLP and convert it to a private limited com-
pany immediately before funding is raised.

LIMITED LIABILITY
PARTNERSHIP
Business Registration Guidebook
13
Advantages
Limited Liability: Businesses often need to borrow
money. In a General Partnership, partners are
personally liable for all this debt. So if it cannot be repaid by
the business, the partners would have to sell their personal
possessions to do so. In an LLP, only the amount invested in
starting the business would be lost; all personal property
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
company), significantly lowering the cost of registration.
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Reduced Compliance: An LLP only requires
audited annual returns to be filed if it has a turnover
of greater than Rs. 40 lakh or capital contribution of over Rs.
25 lakh. It also needs to communicate fewer business
transactions and structural changes than a private limited
company.
1
3
2
4
Tax Advantages: There are some important
5 6
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.
14
Procedure
The LLP incorporation procedure takes 20 to 35 days to 3 LLP Registration
complete, depending on whether you have your documents During the final process, you would need to submit
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,
which will take up to 15 days to verify them. All you need to do
1 DSC & DPIN Applications
is provide us with the information, signatures and scanned
All the proposed partners need a Digital Signature
documents relating to the LLP and its partners.
Certificate (DSC), which is necessary to get them a Digital
Time Required: 5 to 15 working days
Partner Identification Number (DPIN). You will only need to
provide a handful of scanned documents; our representatives
PAN & TAN Applications
will ensure the forms are correctly filled.
4
Every company needs a registered Permanent
Time Required: 4 to 6 days
Account Number (PAN) and Tax Account Number
(TAN). We will make the application online ourselves, but you
2 LLP Name Approval
will need to courier hard copies of the required documents
The unique name you wish to give your LLP should
yourself. Both will be couriered to the your registered office
be available and pass the naming guidelines provided by the
address in 7 working days.
MCA. Our experienced officers will give you all the help you
Time to Complete: 7 working days
need in finding the right combination.
Time Required: 2 to 7 working days

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The Practical Start-up Guidebook 15

 FAQS
Q: Do I need to be present in person during
this process?
A: No, as all documents are filed electronically, you
would not need to do so at all.
Q: How many partners are permissible?
A: There is no maximum number, but you, of course,
need a minimum of 2 to form the partnership.
Q: Can a foreign national be a partner?
A: So long as one of the partners is an Indian citizen,
others can be foreign nationals.
Q: What is DSC and DPIN?
A: The DSC is an instrument issued by certifying
authorities by which you can sign electonic
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.
Q: Does an LLP have continuous existence?
A: Yes, so long as the annual compliances are met, the
LLP will continue to exist. If you do not comply with
the requirements.
Q: How do I pick a name for my LLP?
A: You need to first ensure that your name has not
already been taken. This can be done by checking the
MCA website. If you are disappointed that a preferred
name is taken, do remember that the name of your
concern doesn't have to be your brand name.
However, if you're going to register the brand name,
also check if it has already been trademarked. While
framing your name, please ensure that it has a unique
component that you coin and a descriptive
component that specifies the business you’re in.
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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The Practical Start-up Guidebook 18

Procedure
The OPC procedure takes up to 25 days to complete. You will
be informed of the various scanned documents you would
need to provide over the course of the process by our
representatives. Here is a snapshot of the process:
1
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
2
Final Incorporation
As soon as we’ve the DSC, we will ask you for the
unique name you wish to give your company (we can help you
find the right combination). We will also require some
information, signatures and scanned documents regarding
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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The Practical Start-up Guidebook 19

 FAQS
Q: Do I need to be present in person during
this process?
A: No, as all documents are filed electronically, you
would not need to do so at all. You would need to send
us scanned copies of all the required documents. We
may, however, ask for hard copies of some documents,
too, with the necessary attestations.
Q: Will I get a printed incorporation certificate
from the Government?
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: How do I pick a name for my company?
A: You need to first ensure that your name has not
already been taken. This can be done by checking the
MCA website. Do note that the name of your concern
doesn't have to be your brand name. However, if you're
going to register the brand name, also check if it has
already been trademarked. While framing your name,
please ensure that it has a unique component that you
coin and a descriptive component that specifies the
business you’re in.

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

Business Registration Guidebook 21

Advantages

Minimal Compliance: General Partnerships do not Relatively Inexpensive: A General Partnership is

need to appoint an auditor or, if unregistered, even
file annual accounts with the registrar. Annual compliances are
also fewer as compared to an LLP. General Partnerships do
need to file Income Taxes and, depending on turnover, service
and sales tax.
cheaper to start than an LLP and even over the
long-term, thanks to the minimal compliance requirements, is
inexpensive. You would not need to hire an auditor, for
example. This is why, despite its severe shortcoming
(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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The Practical Start-up Guidebook 22

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.
1
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
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Partnership Deed Registration (Optional)
2
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
PAN & TAN Applications
3
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
23
 FAQS
Q: Do I need to be present in person during
this process?
A: Drafting is done online, but you and the other
partners need to be present at the Registrar's Office if
you wish to register the Partnership Deed.
Q: How many partners are permissible in an
LLP?
A: A General Partnership permits a minimum of two
and maximum of 20 partners.
Q: Can a foreign national be a partner?
A: No, partners must be Indian citizens residing in
India.
Q: Is there a minimum amount of capital
required?
A: Not at all. You can even start with Rs. 100, if you
wish.
Q: Can a General Partnership have an investor?
A: Yes, but only so long as he is an Indian citizen
residing in India. It may be done without any approval.
Such an investor can even be classified as a limited
partner, which would excuse him/her from
participating in business activities, thereby limiting his
liability.
Q: Can I convert my Partnership into an LLP or
Private Limited Company?
A: Yes, you can, but this is a tedious and expensive
procedure. It may be better to close the partnership
altogether and then start afresh as an LLP or Private
Limited Company.
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 that’s 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

Business Registration Guidebook 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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The Practical Start-up Guidebook 26

Procedure
Proprietorship is recognised through one or more government
registrations. Our representatives will advise you about the
ones you will need based on the business you're in, and
inform you of the documents you would need to provide in
each case. Here is a snapshot of the process:
Select Registration
1 registration.
We will help you decide what registration you need,
whether service tax, sales tax, import/export code, MSME
registration or Shops and Establishments registration.
Time to Complete: Less than a day
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Begin Procedure
2
Once you've decided what you want, we'll ask you for
the documents we need to get started. In most cases, you
would first need to provide address and identity proof as well
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
throughout the process until you receive the required
Time to Complete: Depends on selected service
3
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
27
 FAQS
Q: Who can be a proprietor? Q: Can I convert my proprietorship to a private
A: Only Indian citizens residing in India can be sole 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 One-Person Company, LLP or Private Limited
the proprietorship? 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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