Free tools by Finaccle
Company vs LLP vs Proprietorship
Enter your expected profit to compare the total tax under each structure, then see how they differ on liability, compliance and fundraising.
Owners pay: ₹0
| Proprietorship | LLP | Private limited company | |
|---|---|---|---|
| Owners | 1 person | 2 or more designated partners | 2 or more shareholders and directors (1 for OPC) |
| Liability | Unlimited, personal assets at risk | Limited to agreed contribution | Limited to share capital |
| Registration | None needed; GST, Udyam or shop licence | With MCA (FiLLiP); LLP agreement in 30 days | With MCA (SPICe+); PAN, TAN and bank account issued together |
| Yearly filings | Income tax return; GST if registered | Form 8 and Form 11 to MCA, ITR-5 | AOC-4, MGT-7, DIR-3 KYC once in 3 years, ITR-6, board meetings |
| Statutory audit | Only tax audit above turnover limits | Only if turnover above ₹40 lakh or contribution above ₹25 lakh | Every year, regardless of size |
| Raising funds | Own funds and loans only | Partner contribution; no equity investors | Equity from angels and VCs; ESOPs; can list via SME IPO |
| Foreign investment | Not possible | Allowed under automatic route in eligible sectors | Allowed under automatic route in most sectors |
| Best for | Freelancers and small traders | Professional firms and family businesses | Startups and businesses planning to scale or raise funds |
How the tax comparison works
A proprietor pays tax on the whole profit at individual slab rates. An LLP pays 30% plus cess on profit after partner remuneration, and partners pay slab tax on their remuneration; the remuneration that can be deducted is capped by a formula based on book profit. A private limited company can pay 22% (25.17% with surcharge and cess) on profit after director salaries, and directors pay slab tax on their salary.
Which structure should you choose?
A proprietorship is simplest for a single owner with modest profits, because income up to ₹12 lakh is tax-free under the new regime. An LLP suits professionals and family businesses that want limited liability with lighter compliance. A private limited company is best if you plan to raise equity, issue ESOPs, bring in foreign investment or list on an SME exchange later.
Frequently asked questions
Can I convert a proprietorship into a company later?
Yes. A proprietorship can be taken over by a new private limited company, and a partnership firm can convert into an LLP or company. If the conditions are met, the transfer of assets is not taxed as a capital gain.
Is the profit retained in a company taxed again?
Profit kept in the company is taxed only once, at the company rate. When it is paid out as dividend, shareholders pay tax on it at their slab rate, so plan salary and dividends together.
Which structure has the lowest compliance cost?
A proprietorship, followed by an LLP. A company must hold board meetings, keep statutory registers, get its accounts audited every year and file AOC-4 and MGT-7, which makes its yearly compliance cost the highest.
Need a hand? Private limited company registration or book a free consultation with our CA-led team.