LLP vs Private Limited vs OPC vs Proprietorship: Which Structure Should You Choose in 2026?

LLP tax rate

30% + 4% cess

Flat, after partner remuneration under 40(b)

Company under 115BAA

22% + 10% + 4%

Effective 25.17%, no MAT

LLP audit threshold

₹40 lakh

Turnover, or ₹25 lakh contribution

Pvt Ltd professional fee

₹6,999

Plus government fees and stamp duty at actuals

The four structures side by side

Most Indian businesses start as one of four things: a proprietorship, a Limited Liability Partnership, a One Person Company or a Private Limited company. Partnership firms still exist but an LLP does everything a partnership does with limited liability, so we treat them together. The table gives the facts; the sections after it explain what each row means for you.

Liability and credibility

A proprietorship has no separate existence. If the business owes money to a supplier, a bank or a customer, the proprietor owes it, and personal assets including the family home are exposed. This is acceptable for a consultant with no inventory and no debt. It is a real risk for a trader carrying stock on credit or a business with employees and premises.

LLPs and companies are separate legal persons. Your exposure ends at the capital you contributed or the shares you hold, unless you have signed a personal guarantee for a loan, which banks routinely ask of small companies. Beyond protection, a registered entity carries credibility: corporate customers, marketplaces, lenders and government tenders often require a Private Limited or LLP on the vendor form.

Tax: slab versus 30% versus 22%

The tax comparison surprises most founders. A proprietor pays at personal slab rates, which under the new regime for FY 2025-26 means nothing up to ₹12 lakh after the 87A rebate, and an average of about 10% on ₹20 lakh. An LLP pays a flat 30% plus 4% cess, but partner remuneration allowed under section 40(b) is deducted first and taxed in the partner hands at slab rates. A company pays 25% (turnover up to ₹400 crore) or a flat 22% under section 115BAA with 10% surcharge and 4% cess, an effective 25.17%, and dividends are then taxed again at the shareholder slab.

The example shows that the structure matters less than how profits are drawn. With salary or remuneration planning, an LLP and a company come close. Without it, the company is expensive because retained profit is taxed at 25.17% and again as dividend at up to 30% when distributed. A proprietor cannot pay themselves a salary, so the slab applies to the whole profit.

Audit thresholds and who signs

• Proprietorship: no statutory audit. Tax audit under section 44AB applies above ₹1 crore turnover, or ₹10 crore where cash receipts and payments are each within 5%. Professionals: above ₹50 lakh receipts.
• LLP: audit of accounts under the LLP Act above ₹40 lakh turnover or ₹25 lakh partner contribution. Tax audit thresholds apply separately.
• OPC and Private Limited: statutory audit under the Companies Act every year from incorporation, even with zero revenue, plus a tax audit above the 44AB limits.
• Every audit above is signed by a Chartered Accountant. Compilation, tax computation, ROC filings and returns can be handled by a CMA or CA.

Annual compliance calendar

Compliance is where the structures diverge in cost. A proprietor has one income tax return and GST if registered. An LLP adds two ROC forms. A company adds board meetings, an annual general meeting, three to four ROC forms and an auditor appointment. Missing an ROC date costs ₹100 per day per form with no cap.

A newly incorporated company must also file INC-20A declaring commencement of business within 180 days, before it can start operations or borrow. Every company and LLP needs Class 3 digital signatures for its signatories, renewed every two years.

Cost of setting up and running each structure

The annual figures include return filing, ROC forms and audit fees where mandatory, and exclude GST return filing which depends on volume. The gap between an LLP and a company is almost entirely the statutory audit and the extra ROC forms.

Fundraising and ownership

If you expect to raise money from angels or venture funds, or to give employees stock options, the choice is made for you. Investors subscribe to equity or compulsorily convertible preference shares, and only a Private Limited company can issue them. Startup India recognition, 80-IAC tax holiday and angel tax exemption are all designed around companies and LLPs, but term sheets are written for companies.

• LLP: capital comes from partners and loans. New partners can be admitted with a change to the agreement. Foreign investment is allowed under the automatic route, but no ESOP framework exists.
• OPC: one member only. It cannot add a co-founder or investor without converting to a Private Limited company, which is now allowed at any time.
• Private Limited: equity, preference shares, convertible notes, ESOPs and up to 200 shareholders. Bank lenders also prefer the reporting discipline of a company.
• Proprietorship: cannot take equity at all. Growth is funded by profits and personal or business loans.

Converting later: what it costs

Starting simple and converting later is a valid plan, as long as you know the conversion rules. Proprietorship to LLP or company is a transfer of business; capital gains are exempt under section 47(xiv) if the proprietor holds at least 50% of the voting power for five years and takes only shares as consideration. LLP to company happens under section 366 of the Companies Act with a fresh incorporation.

Company to LLP is possible but the tax exemption under section 47(xiiib) applies only where turnover did not exceed ₹60 lakh in any of the three preceding years and total assets did not exceed ₹5 crore. Above that, the conversion is a taxable transfer. OPC to Private Limited is a simple conversion by adding a member and director, and the reverse is possible when paid-up capital and turnover fall within OPC limits.

Decision framework by founder type

What to do next

Write down three things: how many owners you have today, whether you will take outside equity in the next three years, and how much profit you expect to withdraw versus retain. Those answers point to one row in the table above. If two structures still look equal, book a structuring session, and we will run your numbers through both and hand you a first-year compliance calendar with the incorporation.