Do you know the types of legal structures you choose for your business can have a significant impact on various aspects of your operations, including liability, taxation, management and fundraising. Different legal structures offer varying levels of protection, control, and flexibility to business owners. In this blog we will explore what are the types of legal structures in business is, its types and how to choose the right one for your business.
A business legal structure refers to the legal and organisational framework that a business entity adopts to operate, manage its affairs, define ownership, and establish relationships with stakeholders. Here are some different types of legal structures of a business in India.
- Sole Proprietorship
- Partnership
- Limited Liability Partnership (LLP)
- Private Limited Company
- Public Limited Company
- Section 8
- One Person Company
- Trust
Sole Proprietorship
A sole proprietorship is the simplest legal structure of a business, owned and managed by one person. It is not a separate legal entity, so the owner has unlimited liability.
Legal & registration
No mandatory central registration exists, but licences like GST registration, Shops & Establishments Act licence, Professional Tax registration, or industry-specific permits may be required based on the business type.
Taxation
Business profits are treated as the owner’s personal income and taxed at individual income-tax slab rates. No separate corporate tax exists.
Best suited for
Small retailers, freelancers, consultants, home-based services, and family-run units seeking quick setup and minimal compliance.
Limitations
Poor fit for high-risk operations or ventures seeking outside capital due to unlimited liability and limited credibility with investors. Owners should maintain proper accounting, carry adequate insurance, and consult advisors before expanding or hiring.
Partnership Firm
A partnership is a legal structure of a business where two or more individuals share ownership, profits, and responsibilities. Partners have joint and unlimited liability.
Legal & Registration
Formed through a partnership agreement under the Indian Partnership Act, 1932. Registration with the Registrar of Firms is optional but recommended for legal protection.
Taxation
Partnership income is taxed at a flat rate, separate from partners’ personal income.
Best Suited For
Small to medium businesses in retail, manufacturing, or services that need combined resources but do not require corporate-level compliance.
Note
Among the types of legal entities in India, partnerships are quick and inexpensive to set up, but they expose partners to unlimited personal liability, unlike incorporated businesses that offer limited liability protection to their owners.
Limited Liability Partnership (LLP)
An LLP blends partnership flexibility with limited liability protection, making it a popular legal structure of a business for professionals and small enterprises. Formed by agreement between two or more designated partners, the LLP Agreement defines profit sharing, management roles, and dispute resolution.
Legal & Registration
Governed by the LLP Act, 2008 and the LLP Rules, 2009, with registration through the Ministry of Corporate Affairs (MCA). The LLP Amendment Act, 2021 introduced Small and Start-up LLPs, easing compliance.
Taxation
LLPs are taxed as separate entities under the Income Tax Act, 1961, without dividend distribution tax. GST and FEMA provisions may also apply based on operations and investment.
Best Suited For
Consulting firms, legal practices, and SMEs seeking liability protection without rigid corporate formalities.
Note
This is one of the types of legal entities in India that balances operational simplicity with liability protection, offering many of the advantages of an incorporated business while requiring fewer compliance formalities.
Private Limited Company (PLC)
A PLC is a preferred legal structure of a company for startups and growing businesses as it offers limited liability protection to its shareholders, opportunities for expansion, and the ability to maintain a level of privacy and control. It requires at least two shareholders and two directors, with one director being an Indian resident, making it an attractive choice for scaling ventures.
Legal & Registration
Governed by the Companies Act, 2013, and Companies (Incorporation) Rules, 2014. Requires at least two shareholders and two directors (one resident in India). Registration with the ROC is mandatory, supported by key documents—MoA (objectives, liability, share capital) and AoA (internal management rules).
Taxation
Treated as a separate legal entity under the Income Tax Act. Subject to corporate tax, advance tax payments, TDS, and other applicable levies like GST or customs duty.
Best Suited For
Businesses aiming to scale and attract equity investment. Among the types of legal entities in India, it offers strong credibility and growth potential as a legal structure of a business
Public Limited Company
A Public Limited Company is a legal structure of a company designed for raising substantial capital by issuing shares to the public through an Initial Public Offering (IPO). Post-IPO, its shares are listed and traded on stock exchanges, offering liquidity to shareholders and enhancing visibility.
Legal & Registration
Requires a minimum of seven shareholders and three directors, with at least one director being an Indian resident. Registered under the Companies Act, 2013, and subject to SEBI regulations for listed companies.
Taxation
Pays corporate taxes and must comply with detailed disclosure requirements.
Best Suited For
Large businesses aiming for IPOs and significant public investment.
Note
Among the types of legal entities in India, this offers maximum fundraising potential but also the highest compliance obligations for any legal structure of a business.
Section 8 Company
A Section 8 company is a legal structure of a business established for promoting charitable, educational, scientific, religious, social, or philanthropic purposes. These companies operate with the primary goal of benefiting the society.
Legal & Registration
Registered under Section 8 of the Companies Act, 2013, and must apply profits solely for promoting its objectives.
Taxation
May qualify for income tax exemptions under certain provisions if registered under Section 12A and 80G of the Income Tax Act.
Best Suited For
Non-profits, NGOs, and social enterprises.
Note
This structure offers limited liability protection while fulfilling philanthropic goals, aligning with the governance standards of a legal structure of a company.
One Person Company (OPC)
An OPC is a legal structure of a company allowing a single individual to operate with limited liability while enjoying the benefits of a separate legal entity. It is owned and managed by one person, who acts as both shareholder and director.
Legal & Registration
Registered under the Companies Act, 2013, with one shareholder and one director (same person). Key documents like the Memorandum of Association (MOA) and Articles of Association (AOA) must be filed with the Registrar of Companies (ROC).
Taxation
Subject to corporate tax rates and compliance similar to a Private Limited Company.
Best Suited For
Solo entrepreneurs wanting corporate benefits without multiple shareholders.
Note
OPCs cannot raise funds through IPOs and have limited funding options. They bridge the gap between sole proprietorships and private companies, offering a formal structure with single ownership.
Trust
A trust is a legal structure of a business used to manage assets for beneficiaries or charitable purposes.
Legal & Registration
Governed by the Indian Trusts Act, 1882 (private trusts) or state-specific laws (public trusts). It operates under a trust deed — a legally binding document outlining its objectives, administration, and the powers and responsibilities of trustees. In some cases, registration with the relevant authority is required.
Taxation
Charitable trusts may receive tax exemptions if properly registered under the Income Tax Act.
Best Suited For
Philanthropic, educational, or religious initiatives.
Note
Trusts are distinct from the standard legal structure of a company, focusing on asset protection and social objectives rather than profit-making.
Choosing the right legal structure:
The legal structure you choose not only affects the way you conduct business but also influences your ability to attract investors, manage risks, and achieve your long-term goals.
Let us explore in detail the different aspects which help in choosing the right business structure.
- Begin by gaining a deep understanding of your business’s nature, goals, and operations
- Assess how much personal liability protection you need. If you want to shield your personal assets, structures like limited liability companies (LLCs) are suitable
- Examine the tax implications of each legal structure. How profits are taxed, is there any double taxation etc.,
- Think about how you plan to raise capital for your business. If you are planning to seek external financing then Private Limited are more suitable
- Consider who will own and manage the business. Think about how you want to distribute decision-making authority and responsibilities.
- Research the legal and regulatory requirements associated with each structure. Assess your willingness and capacity to meet these requirements.
- Evaluate your tolerance for risk. Structures like partnerships or sole proprietorships expose you to greater personal liability, while limited liability structures offer more protection
Most popular among them are Private Limited Companies for the various advantages it offers. Remember that your choice of legal structure isn’t permanent. As your business evolves, you can reevaluate and change your structure to better suit your needs. Some structures even allow for conversion or transition to more complex options. Seeking advice from legal, financial, and business experts is advisable to make an informed decision that maximises your business’s potential for success while minimising risks and liabilities.
