The first step to starting a business in India is the registration of a business entity. Any form of the entity can be chosen and registered with the relevant government department.
Once the entity is registered, the applicable tax and other registrations need to be done in the name of the entity.

For a for-profit business, there are primarily five types of business entities in India:
i. Public Limited Company
ii. Private Limited Company
iii. Limited Liability Partnership (LLP)
iv. Partnership
v. One Person Company (OPC)
vi. Proprietorship

While the first four types (Public Limited, Private Limited, LLP and Partnership) require more than one promoter, OPC and Proprietorship are the types of entity applicable when there is only one promoter.

	Sole Proprietorship	Partnership Firm	One Person Company	Limited Liability Partnership	Private Limited Company
Limited Liability	NO	NO	YES	YES	YES
Multiple Partners	NO	YES	NO	YES	YES
Ease of Incorporation	Very Easy. No separate Registration	Indian Partnership Act - 1932	Difficult. Registered under Indian Companies Act – 2013	LLP Act-2008	Difficult. Registered under Indian Companies Act – 1956/2013
Compliance	Very Less Compliance	Very Less Compliance	Moderately Complex Compliance	Moderately Simple Compliance	Complex Compliance
Ease of allotting shares	Not Possible	Not Possible	Not Possible	Very Difficult. Almost impossible	Very Easy

Type of Company	Best suited for
Sole Proprietorship	Small Traders & Merchants where there is only single founder in unorganized sector Single founder testing the market
Partnership Firm	Small Traders & Merchants where there are 2 or more Promoters in unorganized sector Has lost the relevance otherwise after introduction by LLP
One Person Company	Single Promoter who wishes to take advantage of Limited Liability Suitable only for small businesses
Limited Liability Partnership	For businesses started by 2 or more founders. If there is no need of equity investment for the company
Private Limited Company	Scalable Businesses started by 2 or more founders If Funds are to be raised in lieu of Equity shares of the company

Advantages

• Very easy to issue fresh shares and raise equity funding
• Easy to offer and manage equity to the new promoters or ESOP to the employees
• Easy for investors or shareholders to exit the company by selling their shares
• More Credibility in the market
• Limited liability of the promoters or shareholders

Disadvantages

• Compliances are relatively higher than the other entity types
• Low Tax Benefits
• In case the business needs to be closed down, a cumbersome process has to be completed

Advantages

• Lesser compliances since the working is governed by the Partnership deed
• Tax benefits like, no dividend distribution tax and no tax on loans to partners
• Limited liability for the partners

Disadvantages

• Very difficult to raise funding on fresh equity
• Extremely difficult to offer Shares/ ESOPs to employees or other stakeholders
• Selling of the shares of one of the Partners is very difficult

Advantages

• Easy to incorporate
• Legal way for group of individuals to conduct business

Disadvantages

• Unlimited Liability among partners
• Extremely unlikely to raise equity capital or offer equity to any other stakeholder

Advantages

• Limited Liability
• Allows to have only one promoter

Disadvantages

• Impossible to issue fresh equity and get funding in lieu of Equity
• Once the Paid up capital crosses INR 50 Lac or ransaction crosses INR 2 Crores for any 3 consecutive financial years, then it is compulsory to convert the company to Pvt Ltd Company or Public Company
• Compliance similar to that of a Private Limited Company

Advantages

• Easiest way to start a business
• No separate registration of the company is required. Only the applicable tax and other registrations, as applicable will be needed to operate the business.

Disadvantages

• No Legal difference between the Proprietor and the company
• Unlimited personal liability
• Impossible to accept equity investment

In case you are looking to raise equity capital or offer ESOP to your employees in the future, Private Limited Company will be the best suited entity for you. However, if you do not wish to raise equity capital or offer ESOP to the employees, you can opt for a Limited Liability Partnership or a simple Partnership depending on the financial liability or the nature of the business.

In case you want to limit your personal liability and secure the name with the MCA, you should opt for a One Person Company. However, you are more interested in keeping the registration and compliance processes similar; you can opt for Proprietorship firm

You can opt for either a Private Limited Company or a Limited Liability Partnership or a Partnership firm. The choice should depend on the following factors:

• Exposure to liabilities the shareholders want to take
• Whether you want to offer ESOP to employees or not
• Extent of regulatory compliance you want to expose your entity to
• Whether you want to make the business a going concern or have the existence of entity dependent on the partners. A Private Limited Company is a going concern

Presently, following conversions are available by various clauses of Companies Act

• A Partnership firm registered according to Indian Partnership Act - 1932, can be converted to an LLP
• A Private Limited Company can be converted to an LLP(Please note that the name will now start ending with LLP instead of Pvt Ltd. For e.g., your present ABC Pvt Ltd., should be renamed ABC LLP)
• OPC has to be compulsorily converted to a Pvt Ltd Company, either if Paid up Capital is increased beyond Rs.50 Lac or if Annual Turnover of immediately preceding three consecutive financial years exceeds two crore rupees

• Though this will depend on the nature of your business and the tax and other license registrations that need to be done, you can explore starting with a Partnership or Proprietorship (depending on the number of promoters). Once you have made up your mind and want to raise capital to invest further in the business, you can either convert it or register a new entity.
• Please note that in case you decide to start a new entity, you will have to get all the registrations done again and the financial track record cannot be carried from the earlier entity, unless a conversion or acquisition happens