Comparison of Different Legal Entities in India
Comparison of Different Legal Entities in India
Choosing the right legal structure is one of the most important decisions when starting a business in India. Each legal entity differs in terms of liability, compliance, taxation, ownership, and scalability.
This comparison helps users understand which structure best suits their business needs.
1. Sole Proprietorship
Description
A sole proprietorship is owned and managed by a single individual. It is the simplest form of business in India.
Key Characteristics
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No separate legal identity
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The owner bears full responsibility
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Minimal registrations required
Pros
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Easy to start and close
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Lowest compliance cost
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Complete control
Cons
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Unlimited personal liability
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Limited business credibility
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No funding or equity options
Best For
Small traders, freelancers, home-based businesses.
3. Limited Liability Partnership (LLP)
Description
LLP combines the flexibility of a partnership with the benefits of limited liability.
Key Characteristics
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Separate legal entity
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Liability limited to contribution
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Governed by the LLP Act, 2008
Pros
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Limited liability protection
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Lower compliance than companies
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Ideal for service-based businesses
Cons
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Limited funding options
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Not ideal for equity-based growth
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Fewer investor preferences
Best For
Professionals, consultants, and small service firms.
5. Private Limited Company
​Description
A private limited company is the most structured and widely used business entity in India.
Key Characteristics
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Separate legal entity
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Limited liability of shareholders
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Governed by the Companies Act, 2013
Pros
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High business credibility
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Easy access to funding
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Ownership transferability
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Suitable for scalable businesses
Cons
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Higher compliance cost
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Mandatory audits
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Regular statutory filings
Best For
Startups, growing businesses, and investment-ready companies.
2. Partnership Firm
Description
A business owned by two or more persons governed by a partnership deed.
Key Characteristics
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Governed by Indian Partnership Act, 1932
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Shared management and profits
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Registration optional
Pros
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Simple structure
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Shared decision-making
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Low compliance
Cons
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Unlimited liability of partners
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Risk of disputes
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Limited scalability
Best For
Traditional businesses, family-run enterprises.
4. One Person Company (OPC)
Description
OPC allows a single individual to operate a company with limited liability.
Key Characteristics
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Separate legal identity
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One shareholder
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Governed by the Companies Act, 2013
Pros
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Limited liability
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Better credibility than proprietorship
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Easy conversion to a private limited company
Cons
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Limited expansion capability
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Restrictions on ownership
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Not suitable for multiple founders
Best For
Solo entrepreneurs planning future growth.
6. Public Limited Company
Description
A public limited company can raise capital from the public and list on stock exchanges.
Key Characteristics
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Strict regulatory framework
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Large ownership structure
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High transparency
Pros
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Access to large capital
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High market credibility
Cons
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Very high compliance
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Complex management
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Not suitable for small businesses
Best For
Large enterprises and listed companies.
7. Section 8 Company (Non-Profit Organization)
​​Description
Formed for charitable, educational, or social purposes.
Key Characteristics
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Non-profit motive
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Income used for objectives only
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Regulated under the Companies Act, 2013
Best For
NGOs, trusts, and social initiatives.
Entity Type | Legal Identity | Liability | Compliance Level | Funding Scope | Ideal For |
|---|---|---|---|---|---|
Sole Proprietorship | No | Unlimited | Very Low | No
| Small businesses
|
Partnership Firm | No | Unlimited | Low | Limited
| Traditional firms |
LLP | Yes | Limited | Moderate | Limited
| Professionals |
OPC | Yes | Limited | Moderate | Low
| Solo founders |
Private Limited | Yes | Limited | High | High
| Growing businesses |
Public Limited | Yes | Limited | Very High | Very High
| Large enterprises |
Section 8 | Yes | Limited | High | Donations
| Non-profits
|
How to Choose the Right Legal Entity
Users should consider:
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Number of owners
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Risk and liability exposure
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Compliance capacity
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Future growth plans
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Funding requirements
Disclaimer
This comparison is for general informational purposes only and does not constitute legal or professional advice. Users are advised to take personal consultation before making business decisions.