The right answer depends almost entirely on one question: do you intend to raise outside capital or give equity to employees.
| Proprietorship | LLP | Private Limited | |
|---|---|---|---|
| Separate legal entity | No | Yes | Yes |
| Personal liability | Unlimited | Limited | Limited |
| Can raise equity funding | No | Very difficult | Yes |
| ESOPs to employees | No | No | Yes |
| Compliance burden | Minimal | Moderate | Highest |
| Minimum people | 1 | 2 partners | 2 members, 2 directors |
Private limited company
Registered under the Companies Act, 2013. It is what every venture investor expects, it is the only common structure that supports ESOPs and preference shares, and it gives the cleanest cap table. The cost is real compliance: board meetings, annual filings with the Registrar of Companies, statutory audit regardless of turnover, and director obligations that carry personal consequences.
LLP
Under the Limited Liability Partnership Act, 2008. Limited liability with much lighter compliance and no mandatory audit below the prescribed turnover and contribution thresholds. Excellent for consultancies, agencies and professional firms. Poor for anything that will raise institutional money, because investors will require conversion first.
One Person Company
A private company with a single member and a nominee. It gives limited liability to a solo founder, but it carries most of the compliance of a private limited company and has restrictions, so many solo founders simply incorporate a private limited with a second nominal shareholder.
Raising money or issuing ESOPs, ever: private limited from day one. A services business you will fund from revenue: LLP. Testing an idea with no revenue and no risk exposure: proprietorship, and convert later. Converting an LLP to a company is possible but it is paperwork and time you will resent during a funding round.
| Private limited | LLP | Proprietorship | |
|---|---|---|---|
| Liability | Limited | Limited | Unlimited, personal |
| External investment | Straightforward, equity | Difficult | Not possible |
| Compliance burden | Highest | Moderate | Lowest |
| Audit | Always | Above prescribed thresholds | Tax audit thresholds only |
| ESOPs | Yes | No | No |
| Winding up | Formal, slow | Formal | Simply cease |
| Best suited to | Anything raising capital | Professional and services firms | Single operator, low risk |
What each form actually demands of you
A private limited company needs a minimum of two members and two directors, and at least one director must be a person who has stayed in India for the period prescribed by Section 149. It must hold board meetings, file its annual return and financial statements with the Registrar of Companies every year, and have its accounts audited regardless of turnover. The late filing fee for the annual return and for the financial statements is charged per day of default, per form, and unlike most other filings it is not capped by a multiplier, which is how dormant companies accumulate startling liabilities.
An LLP needs at least two designated partners, one of whom must be resident in India, and files an annual return and a statement of account and solvency. On audit, the LLP Rules exempt an LLP whose turnover does not exceed forty lakh rupees and whose contribution does not exceed twenty-five lakh rupees. The rule is disjunctively worded and commentary is genuinely split on how to read it, so the prudent course, and the one every auditor takes, is to treat audit as required once either figure is crossed.
A One Person Company is a private company for most purposes, and the restrictions on who may form one and on what it may do are in the incorporation rules rather than in the Act, so check them against your plans before choosing it.
Where you register, in Bengaluru
A company or LLP with its registered office in Karnataka is incorporated through the Registrar of Companies at Bengaluru, and company litigation goes to the National Company Law Tribunal, Bengaluru bench, whose territorial jurisdiction is the State of Karnataka. Keep the registered office address genuine and capable of receiving post, because it is the address at which statutory notices are validly served on you.
If the business qualifies, DPIIT recognition under the Startup India scheme is worth obtaining early. It brings self-certification on several labour and environmental laws, a rebate and fast-track treatment on patent and trade mark filings, and access to the income tax exemption available to eligible startups on a separate application. Our note on startup registration in Bangalore sets out the eligibility conditions and the sequence.
Changing your mind later
Conversion is possible in both directions. An LLP or a registered firm can be converted into a company under the conversion provisions of the Companies Act, 2013, and a company can be converted into an LLP under the LLP Act. Neither is quick. If there is a realistic chance of institutional funding, the cost of incorporating as a private limited at the start is far lower than the cost of converting under time pressure with a term sheet on the table.
Separately from structure, check whether you need GST registration, Shops and Establishments registration, professional tax and any sector licence. Those apply regardless of which form you choose.
On GST specifically, the registration threshold in Karnataka is an aggregate turnover of forty lakh rupees for a supplier engaged exclusively in the supply of goods, and twenty lakh rupees otherwise, including for a supplier of services and for anyone supplying both. Karnataka is not one of the states excluded from the higher goods threshold. Note that certain categories, such as persons making inter-State taxable supplies and those liable under reverse charge, must register regardless of turnover, so the threshold is not the end of the enquiry. In Karnataka you will also need registration under the Karnataka Shops and Commercial Establishments Act, 1961 for a commercial establishment, and enrolment and registration for professional tax. Provident fund and employee state insurance obligations begin at employee counts fixed by their own statutes, so track headcount against those thresholds as you hire.