Starting a business takes passion and aptitude. It also takes one early decision that is genuinely hard to undo: what form your organisation will take. Everyone calls it “a company” — but the choice between a proprietorship, a partnership, an LLP and a company determines whether your personal assets are on the line.
Sole proprietorship
When you are the founder and the sole proprietor, the business is a sole proprietorship. The critical point: the proprietor and the business are one and the same. The concern is not a separate legal entity. The proprietor is accountable for its debts and losses, and all profits (subject to tax) belong to the proprietor.
It is the simplest form, with no string of formation procedures. What matters practically is opening a bank account, for which the bank requires PAN details — the business needs no separate PAN; the proprietor’s suffices. Depending on the business, GST registration will also be required. (When this was written, the relevant registrations were service tax and sales tax; GST replaced them from July 2017.)
Partnership
Where two or more persons come together to do business and share the profits, a partnership may be the right form. It is governed by the Indian Partnership Act, 1932 and is nearly as simple as a proprietorship.
The defining feature is the same exposure: the partnership has no separate legal existence, and the partners are personally liable for the debts of the firm. Interestingly, a partner can share in profits while being precluded from bearing losses.
The maximum number of partners is 50, as prescribed under the Companies Act, 2013 and the rules made under it. (The older limits of ten for banking and twenty for other businesses came from the Companies Act, 1956 and no longer apply.)
Registration is not legally mandatory but is generally advisable — an unregistered firm faces real disabilities in enforcing its rights in court.
The partnership deed is the central document, setting out the names and addresses of partners, the business to be carried on and its commencement date, the principal place of business, the profit-sharing ratio, the capital contributed, and the duration of the firm.
To register, apply to the Registrar of Firms for the area where the place of business is situated, with:
- the application for registration, duly filled, signed and verified by all partners or their authorised agents;
- the affidavit specimen;
- a true copy of the partnership deed; and
- the rental agreement or proof of ownership for the place of business.
These are submitted with the prescribed fee. Once found in order, the Registrar enters the firm in the Register of Firms and issues a certificate of registration. A PAN can then be obtained for the firm using the deed or the certificate, followed by a TAN, and a bank account on the strength of the PAN.
Limited liability partnership
An LLP extends the partnership form with a decisive advantage: the liabilities of the partners are limited to the investment they have brought in. It is also a separate legal entity. The minimum number of partners is two.
The Ministry of Corporate Affairs has digitised the process substantially at mca.gov.in. Incorporation runs roughly as follows:
- Obtain the DPIN (Designated Partner Identification Number) and DSC (Digital Signature Certificate) for the partners.
- Reserve the name — the portal allows a name-availability check before applying.
- Submit the incorporation documents to the Registrar of Companies, digitally signed by a practising Company Secretary, Chartered Accountant, Advocate or Cost Accountant involved in the LLP’s formation, with the prescribed fee (which varies with the partners’ contribution). Once in order, the LLP is registered and a certificate of incorporation issues.
- File the LLP agreement within 30 days of incorporation.
The MCA has since moved LLP incorporation to the FiLLiP form, with the older Form 1/Form 2 route retired — check the current forms on the portal before filing.
Companies
A company is distinguished by three features: separate legal existence, perpetual succession and limited liability.
- Private company — prohibits any invitation to the public, restricts the transfer of shares, and is formed by two or more persons for a lawful purpose subscribing their names to a memorandum.
- Public company — a company that is not a private company, with a minimum of seven subscribers.
- One person company (OPC) — introduced by the Companies Act, 2013, combining a sole proprietorship with a private limited company. It is formed by one individual member, is a separate legal entity, and has perpetual existence. Its distinctive requirement: the member must nominate another person to take over the OPC on the member’s death or disability, and the nominee must consent to act.
What has changed for OPCs. The 2021 amendments removed the earlier restrictions on paid-up capital and turnover that forced conversion into a private company, reduced the residency requirement to 120 days, and allowed non-resident Indians to incorporate an OPC. The form is considerably more useful now than when it was introduced.
Incorporating a company today
The MCA introduced a fast-track route — originally SPICe (INC-32), and now SPICe+, which since February 2020 has replaced it. A single integrated application covers name reservation, incorporation, and DIN allotment, along with PAN and TAN, and additionally GSTIN, EPFO, ESIC, professional tax and a bank account. Public, private and one-person companies can all be registered this way.
The memorandum and articles are filed electronically as e-MoA (INC-33) and e-AoA (INC-34). For an OPC, the nominee’s consent is provided within the form itself, with the nominee’s identity and residential proof attached.
Also attached: an affidavit and declaration by the first directors and subscribers, and — for any director or subscriber without a DIN — proof of identity and residence. The form carries a declaration section completed by the professional (Company Secretary, Chartered Accountant or Advocate) certifying the filing.
Once the form and documents are found in order, the company is registered. Compressing the entire procedure into a single step has made incorporation genuinely straightforward.
Choosing
Each form carries its own benefits and shortcomings. The questions worth asking are: do you need limited liability, do you need a separate legal entity that survives its founders, how many people are involved, and how much ongoing compliance can you carry. Remember that one size never fits all.
The takeaways
- Proprietorships and partnerships expose personal assets — there is no separate legal entity.
- LLPs and companies limit liability — and exist separately from their owners.
- The partnership cap is 50 partners — the old 10/20 limits are long superseded.
- SPICe+ handles incorporation in one application — name, DIN, PAN, TAN, GST and more.
Frequently asked questions
Which business structure limits my personal liability? An LLP or a company. In a sole proprietorship or a general partnership, the owners are personally liable for the business’s debts.
How many partners can a partnership firm have in India? Up to 50, as prescribed under the Companies Act, 2013 and the rules made under it.
Is registering a partnership firm mandatory? No, but it is advisable — an unregistered firm faces significant disabilities in enforcing its rights through the courts.
How is a company incorporated in India now? Through the SPICe+ form on the MCA portal, which covers name reservation, incorporation, DIN, PAN, TAN and several other registrations in a single application.
Useful official resources
- Ministry of Corporate Affairs
- The Indian Partnership Act, 1932
- Startup India