Which registration to choose for my startup- LLP, Private Limited, Proprietorship firm?


I have just started working on my idea and planning to register my Company. What is the right time to register it? How to select the name of my company and in which form should i register it?

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If you are just validating your idea then i believe you can wait a bit because registration a company is a long process and can take upto a month. Moreover for opening bank account you have to also apply for PAN, TAN etc. After doing all this if you realize that your idea is not working then you will do all the formalities to close the company as well which will again take some time.

My suggestion is validate your idea with a beta version or minimum viability product and then go for registration as this can save a lot of time and money.

Once you are sure that you want to register it then I advise you to first decide on the very basic thing that whether you want to raise investments in future or not? Another important aspect it whether you are going to offer ESOPs to your employees or not.

I am saying these two basic things because these things are only possible with a Private Limited Company. First basic criterion for investors to invest is that your company should be a Private Limited Company.

On the other hand LLP has lenient compliance norms compared to Private Limited Company. But it is not preferred by investors to certain legal implications.

I would suggest to keep away from a proprietorship firm because in this firm you are personally liable for any loss recovery which is not the case with LLP and Private Limited.


For more details please read this yourstory article as in why private limited companies are preferred for startups. But remember Private Limited Companies have higher cost of registration and stringent compliance to follow.






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Also please check MCA site (http://www.mca.gov.in/MCA21/Master_data.html) for name availability for your company.



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I would personally recommend LLP  for a startup in India due to following reasons

Benifits of LLP :

1. No limit on owners of business

LLP requires minimum 2 partners. There is no limit on maximum partners unlike a private limited company wherein there is a restriction of not having more than 200 members.

2. No requirement of minimum contribution

As against company there is no minimum capital requirement in LLP. An LLP can be formed with least possible capital.

Minimum Capital contribution

In Case of Company- Private Company – 1,00,000

Public Company -5,00,000

In Case of LLP- No such mandatory requirement

Moreover, the contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefit to the LLP.

3. Lower cost of Formation

The cost of registering LLP is low as compared to cost of incorporating a private limited or a public limited company. An illustration can show the approximate cost involved in formation of private limited company and an LLP.

Professional Charges to incorporate (having capital of Rs. 1 Lakh)

Company -Rs. 4000/-*

LLP- Rs. 3000/-*

Legal Charges to Incorporate i.e Stamp Duty,DIN,DSC etc

Company- Rs. 12,000 to /-

LLP- 7000/-

4. No requirement of compulsory Audit

All the companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. A Limited Liability Partnership is required to get the audit done only if:-

a. If the contributions of the LLP exceeds Rs. 25 Lakhs, or

b. If the annual turnover of the LLP exceeds Rs. 40 Lakhs

5. Lower compliance burden resulting in savings

Approximately at least 8 to10 compliances per annum are required to be made by a private limited company whereas a Limited Liability Partnership is required to file only the Annual Return & a Statement of Accounts & Solvency

6. Taxation Aspect on LLP

For income tax purpose, LLP is treated at par with partnership firms. Thus, LLP is liable for payment of income tax and share of its partners in LLP is not liable to tax. Thus no dividend distribution tax is payable. Provision of ‘deemed dividend’ under income tax law, is not applicable to LLP.

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