What is the best legal structure for your company - OPC, Limited Liability Partnership, or Sole proprietorship?

During company registration, you must choose OPC, LLP and sole proprietorship as the business structure depending on taxation, compliance and the number of owners.

Legal structures to opt for to register your company
  • LLP and OPC are legal or business structures suitable for individuals seeking total business control.
  • LLP, OPC and proprietorship do not include external funding. 
  • Sole proprietorship is suitable for individuals looking for an easy start and are willing to take the liability of their company’s debt

The registration of a company is one of the first steps in starting a new venture. There are multiple business structure options that you can choose for your company during the company registration process at the MCA office. These business structures include - Limited Liability Partnership (LLP), One-Person Company (OPC) and sole proprietorship. 

Also Read: Know how you can clear your debts 

What Is Limited Liability Partnership?

LLP is a business structure suitable for professionals and firms which do not need any equity funding. Some of the critical features of LLP are: 

  • Best for non-scalable businesses 
  • Tax benefits for businesses earning over one crore profit include exemption from tax surcharge and Dividend Distribution Tax (DDT). 
  • No limit on the number of partners and fewer compliances. 

What Is One Person Company?

In an OPC, only one person acts as the company's owner, director, and shareholder. However, in comparison of OPC vs. LLP, LLP seems a better option because OPC has- 

  • Higher compliance 
  • Fewer tax benefits: Profits are charged at a flat 30% with no exemption from DDT.
  • Only suitable for solo entrepreneurs 

What Is Sole Proprietorship? 

A sole proprietorship means that the company and owner have no separate existence, meaning that the person establishing the company is liable for the company's debts. Some of the key points that in LLP vs sole proprietorship India, a sole proprietorship can be a better option are: 

  • Minimal compliances 
  • Less expensive to set up in comparison with LLP
  • Total control of the company rests with the owner, helping in quick decision-making. 
  • Profits are taxable based on income tax slabs for individuals
  • No mandatory audit 

Also Read: Why start a business after retirement?

Which Legal Structure Is Right For You?

Each business structure mentioned above entails different types of taxes, management, liabilities, and management styles. Although a sole proprietorship is easy to start, it has no tax or benefits for a company like LLP. However, if a person wants to have single ownership, they can go with OPC, which has the features and benefits of a company and has lesser compliance than a sole proprietorship. 

But, if you want your company to be funded by investors, you must register it as a private limited company. This is because LLP and OPC are best suited for people who want effective control over their business without external funding. 

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