Lesson content
Scroll through numbered sections or jump via the outline.
What you'll take away
- Incorporating Pvt Ltd with ₹10L authorised capital 'for show' — higher stamp duty in many states.
- Ignoring registered office rules (cannot be a random virtual address without documentation).
- Assuming LLP is 'zero compliance' — you still file Form 8, Form 11, and IT returns.
- Splitting equity 50-50 without vesting because structure paperwork is easier than founder conversations.
Why structure matters on day one
Your legal structure decides how much personal risk you carry, how investors can buy in, how much compliance you owe each year, and even how customers perceive you.
Founders in India often pick Pvt Ltd because it sounds 'serious,' or LLP because a CA said it's cheaper — without mapping the choice to fundraising, co-founders, and tax.
Switching later (proprietorship → company, LLP → Pvt Ltd) is possible but costs time, stamp duty, and professional fees. Starting with the right structure avoids a painful migration at Series A.
Structures Indian founders actually use
Sole proprietorship: One person, unlimited personal liability, minimal compliance. Fine for freelancers billing under ₹20–30L with no employees.
Partnership firm: Two or more partners, joint liability unless limited. Rare for tech startups; still seen in family trading businesses.
LLP (Limited Liability Partnership): Separate legal entity, partners have limited liability, cannot issue equity shares to VCs. Strong fit for agencies, consultancies, and bootstrapped service firms.
Private Limited Company: Separate legal entity, shares, board, ROC filings. Default for startups that want ESOPs, angel/VC money, or enterprise sales.
OPC (One Person Company): Single founder with limited liability; share capital and turnover caps apply. Useful for solo operators who outgrow proprietorship.
Quick comparison for startups
| Factor | Sole prop / Partnership | LLP | Pvt Ltd |
| Personal liability | High / Joint | Limited | Limited |
| Raise equity from investors | No | No | Yes |
| ESOPs for team | No | Difficult | Yes |
| Typical annual compliance cost | Low | Medium | Medium–High |
| Audit requirement | Income tax based | If turnover > ₹40L or capital > ₹25L | Mandatory |
| Best default for VC-backed ambition | No | Rarely | Yes |
Decision guide by founder situation
- Bootstrapped agency with 2–4 partners, no equity investors → LLP is often enough.
- SaaS / product startup planning angel round in 12–18 months → Pvt Ltd early.
- Solo consultant testing idea → proprietorship or OPC, convert when revenue stabilises.
- E-commerce brand with inventory and suppliers → Pvt Ltd for contracts and GST credibility.
- Non-profit social impact → Section 8 company (covered in a later module).
Common mistakes
- Incorporating Pvt Ltd with ₹10L authorised capital 'for show' — higher stamp duty in many states.
- Ignoring registered office rules (cannot be a random virtual address without documentation).
- Assuming LLP is 'zero compliance' — you still file Form 8, Form 11, and IT returns.
- Splitting equity 50-50 without vesting because structure paperwork is easier than founder conversations.
Pro tips
Match structure to your cap table story in 3 years, not just today's invoice volume.
Book a 30-minute structure review with an advisor before paying incorporation fees — Pelago maps structure to your revenue model and state.