There are nine ways to structure a business in India and three more ways for a foreign company to operate here without incorporating one at all. Most of the difference between them comes down to four things, and once you have answered those four the choice is usually obvious.
This note sets out the comparison plainly. If you would rather just describe the business and be told, speak to us — it is a half-hour conversation and there is no charge for it.
The four questions that decide it
One person, two founders, a family, a foreign parent, or a membership. Several structures are simply unavailable depending on the answer.
In a proprietorship or a partnership firm, the owners’ personal assets stand behind the business debts. In every other form on this page they do not.
Foreign investment flows easily into a company, with conditions into an LLP, and barely at all into a firm. This alone often settles the question.
A company files monthly, quarterly and annually and has a statutory auditor from day one. A firm files a tax return. The gap in annual cost is real.
Indian structures compared
| Structure | Who can own it | Liability | Foreign investment | Annual compliance | Best suited to |
|---|---|---|---|---|---|
| Private Limited Company | 2 to 200 shareholders, Indian or foreign, individuals or companies | Limited | Yes — up to 100% automatic in most sectors | Heavy | Anything that intends to raise money, hire at scale or be sold |
| Public Limited Company | 7 shareholders upwards, no maximum | Limited | Yes | Heaviest | A planned listing, or where a regulator or partner requires the form |
| One Person Company | One individual, who must be an Indian citizen, plus a nominee | Limited | No | Moderate | A sole Indian founder who wants limited liability without a partner |
| Limited Liability Partnership | 2 partners upwards, individuals or bodies corporate | Limited | Permitted in sectors without performance conditions | Light | Professional practices, consultancies, family businesses, holding vehicles |
| Partnership Firm | 2 partners upwards | Unlimited, joint and several | Restricted — generally needs approval | Very light | Two or three people trading together with no outside capital |
| Proprietorship | One individual. Not a separate legal person at all | Unlimited | No | Lightest | Testing an idea, or a small local trade with no employees |
| Section 8 Company | 2 members if private, 7 if public. No dividend to members | Limited | Foreign donations need FCRA registration | Heavy | A non-profit that wants institutional or corporate CSR funding |
| Trust | A settlor and trustees. Closely held by design | Limited to the trust property | Foreign donations need FCRA registration | Light | Charitable work under stable control, and family succession |
| Society | 7 members upwards, with an elected governing body | Limited to the society’s property | Foreign donations need FCRA registration | Light | Membership bodies — clubs, associations, welfare and educational groups |
On a phone, scroll the table sideways to see every column.
If you are a foreign company
A foreign parent has four routes into India. The first creates a new Indian company; the other three are offices of the foreign company itself, and each is limited to what the Reserve Bank permits it to do.
| Route | What it is | May it earn income in India | Taxed as | Best suited to |
|---|---|---|---|---|
| Wholly owned subsidiary | A new Indian private limited company owned by the parent | Yes, without restriction on activity | An Indian company, at the domestic rate | Almost every foreign investor who intends to trade in India |
| Liaison Office | A representative office of the parent | No. Promotion and liaison only | Not applicable — no income | A first look at the market before committing |
| Branch Office | The parent trading in India in its own name | Yes, within permitted activities | A foreign company, at a higher rate | Export and import, consultancy, technical support for the parent |
| Project Office | A temporary office for one identified project | Yes, for that project | A foreign company | A contractor that has already won an Indian contract |
On a phone, scroll the table sideways to see every column.
A short decision path
You expect to raise money from investors, grant employee stock options, or sell the business one day.
A private limited company. It is the only Indian form institutional capital reliably subscribes to. How we register one →
You are a foreign company that wants to trade in India and expects to be profitable here.
A wholly owned Indian subsidiary, not a branch office. The tax difference alone usually decides it. Compare the routes →
You are a professional firm, a consultancy or a family business, with no outside capital coming in.
An LLP. Limited liability, materially lighter annual compliance, and the terms are whatever the partners agree. How we register one →
You are one Indian founder, want limited liability, and have nobody to be a second shareholder.
A one person company — unless you expect to raise money within a year, in which case go straight to a private limited company. How we register one →
The work is charitable and you want corporate CSR money or institutional grants.
A Section 8 company. Its filings are public and its governance is visible, which is what funders look for. How we register one →
The organisation is a membership body that should be run by its members.
A society. If instead you want the founders to keep lasting control, a trust. Compare the two →
What people get wrong
Five mistakes we are asked to unwind
- Choosing the cheapest form to register. A proprietorship or an unregistered firm costs almost nothing to start and a great deal to convert once there are customers, employees and a bank facility attached to it. Register the form the business will need in two years, not the one it needs this week.
- Using a template constitution. The articles or the LLP agreement decide what happens when founders disagree, when one wants out, and when an investor arrives. A downloaded template says none of that, and rewriting it later needs everyone’s signature — including the person you are now in dispute with.
- A foreign founder starting with a one person company. It is not available to a foreign national, and the application is refused. The equivalent is a private limited company with a second shareholder.
- Setting up a liaison office and then trading through it. A liaison office may not earn anything in India. Doing business through one exposes the parent to tax in India as a permanent establishment, and that assessment reaches back.
- Leaving a dormant entity unfiled. An LLP or a company that stopped trading still has to file. The penalties accrue daily, they are not waived because the business was inactive, and they fall on the directors or designated partners personally.
What it costs to keep alive
Registration is a one-off. The number that matters over five years is the annual cost of keeping the entity compliant, and it varies more between structures than the setup fee does.
A company files its financial statements and annual return every year, has a statutory auditor from within thirty days of incorporation, holds a minimum number of board meetings, maintains statutory registers and makes an event-based filing every time a director, a shareholding or a charge changes. An LLP files two forms a year and an audit only above a turnover or contribution threshold. A partnership firm files a tax return. A trust or a society files with its registrar and, where it is registered under the Income-tax Act, keeps that registration current.
We publish a compliance checklist for every one of these entity types, so you can see exactly what the year looks like before you choose.
Speak to us
Describe the business and we will tell you
Who will own it, what it will do, where the money is coming from and roughly how many people it will employ. That is enough for us to tell you which structure fits, what registering it takes, and what it will cost to keep — before you commit to anything.
This note is general information about the structures available for carrying on business in India and about the services offered by MPS & Associates, Company Secretaries. It is not legal, tax or financial advice, an opinion or a solicitation, and it does not cover every condition that may apply to a particular case. Thresholds, sectoral conditions and the criteria prescribed by the Reserve Bank of India are revised from time to time. The position applicable to a particular business should be confirmed before it is acted upon.