Proprietor, partnership, LLP or company?
Know what changes between the four common structures, and which one fits where you are now.
6 min read
Before you register anything, you are already a business: a sole proprietor, by default, the moment you start selling. Whether to become something else — a partnership, an LLP or a company — is a choice about four things: who is liable, how much paperwork you want, who owns it with you, and who might invest.
The four common structures
| Structure | Owners | Your personal money at risk? | Paperwork |
|---|---|---|---|
| Sole proprietorship | You alone | Yes — you and the business are the same | Lightest |
| Partnership firm | Two or more partners | Yes — each partner, for the firm's debts | Light: a partnership deed |
| LLP | Two or more partners | Generally limited to what you put in | More: registration and yearly filings |
| Private limited company | Shareholders, run by directors | Generally limited to what you put in | Most: registration, board, audits, yearly filings |
Sole proprietorship: the usual start
There is nothing to incorporate. You register what your activity needs (see the next lesson), open a bank account in the business name, and begin. Your income from the business is your income, taxed as yours.
The catch is that there is no wall between you and the business. If it owes money it cannot pay, the lender can come to you.
Partnership firm: when two people start together
A partnership deed sets out who puts in what, who takes what share of profit, and what happens if one of you wants out. Write it even if you trust each other completely — it is the conversation you will be glad you had while you still agreed.
Like a proprietorship, partners are personally liable for the firm's debts.
LLP and private limited company: when the risk or the ambition is bigger
Both are separate from you in law, which is the point: the business's debts are generally the business's, not yours. In exchange there are more registrations, yearly filings with the Registrar of Companies, and accounts that must be kept to a standard.
A private limited company is the structure investors expect, because it has shares to sell. If you mean to raise outside money, it is usually where you end up.
An LLP sits between: limited liability with a lighter set of rules than a company, but it cannot issue shares to investors the way a company can.
You do not have to pick the final structure on day one. Many businesses start as a proprietorship, prove themselves, and convert when the risk, the partners or the investors make it worth the paperwork.
Questions to decide
- Could the business owe more than you could personally pay? A lease, a large supplier credit, a loan? → limited liability starts to matter.
- Is there more than one founder? → at least a partnership deed.
- Will you raise money from investors? → a private limited company.
- None of these yet? → a proprietorship is fine.
This is general guidance, and each structure has tax consequences. For the decision itself — especially before converting — talk to a CA about your numbers.
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