Choosing Your Business Structure: Types and Use Cases

Picking a business structure is fundamental to growing or starting a business. The legal structure under which your business operates impacts everything from how you are taxed to your legal liability for its debts. 

To help you pick the best structure for your next business venture, this article defines the business structures in India, describes their benefits, and outlines their most common use cases. Examples help you see how these structures operate in the real world.  

Types of business structures

Different business undertakings require different business structures. This section highlights seven types of business structures in India and describes their various purposes.

1. One-person company (OPC)

In 2013, India offered a new business structure: a one-person company. As the name suggests, one person can start and run a business. 

Before this structure was created, the only business structure for a single entrepreneur was a sole proprietorship. 

An OPC is a separate legal entity, which means the owner and the company are different. The structure also offers personal liability protection, which safeguards your assets (like a home or car) if the business fails or falls into debt. 

Common examples of a one-person company are:

• Online businesses

• Consulting business

• Handmade goods sold online 

2. Sole proprietorship

A sole proprietorship is a business structure in which a single individual owns an unincorporated business by themselves. However, sole proprietors who hire employees must go through the proper channels to have them legally recognised. 

Unlike in other business structures, which shield owners from financial and legal liability, sole proprietors are considered the same as their business. They are liable for all their debts and other legal obligations. Because sole proprietors are considered the same legal entity as their business, they are responsible for all business debts.

The liability incurred by sole proprietorships is likely best suited for small, low-risk businesses owned by only one person. They can also be suitable structures for new businesses in the early stages of their operation. 

Common examples of sole proprietorships include:

• Small, local grocery stores 

• Freelance writers

• Artists 

3. General partnership 

A partnership is a business structure in which two or more individuals own a business together. A partnership deed document specifies investment ratios and how profits or losses are managed. 

A partnership is easy to set up. It can be registered with government officials, but it’s not required.

There is no liability protection offered under this structure. If the business fails or goes into debt, it’s the partners' shared responsibility to fix it.  

Common examples of partnerships include:

• Consulting companies

• Small business ventures with two equal partners

4. Limited liability partnership

In limited liability partnerships (LLPs), all members maintain only limited liability for the business. This means that each partner is protected from the others, ensuring that the debts one partner has incurred are not transferred to the others. 

Due to their liability shielding, partnerships are likely best suited for small businesses with low to moderate risk with more than one owner. 

Common examples of partnerships include: 

• law firms

• restaurant groups

• investment firms

5. Private limited company

A private limited company is often referred to as a joint stock company. This structure restricts the right to transfer shares and limits the number of members to 200.

It’s governed under the Indian Companies Act and only includes members with a minimum paid-up capital of 1 lakh rupees.

The company is privately held by members only and is not listed on the stock exchange, which can limit its ability to raise funds. However, all decisions are controlled by the owners without interference from dozens of shareholders.

Common examples of private limited companies include: 

• Larger companies that sell products

• Manufacturers

• Communication companies

6. Public limited company

A public limited company is also a joint stock company similar to a private limited company, except there is no minimum number of members and is made up of owners with a minimum paid-up capital of 5 lakh rupees.

A public limited company is also listed on the stock exchange. As a result, a public limited company comes with more regulations, including regular member meetings.

Since public limited company owners can raise capital from the public, fundraising capabilities and growth are often easier to achieve than for private companies.   

Common examples of public limited companies include: 

• Larger companies that sell products

• Tech companies

• Pharmaceutical companies

5. Nonprofit organisation (NPO)

A nonprofit organisation seeks to do something other than generate profit for its members. Nonprofits can do a wide range of activities, such as providing charity to the public, conducting scientific research, offering free educational services, and advocating for legal reforms. 

Nonprofits are tax-exempt due to the public-oriented nature of their work, but most are subject to Goods & Services Tax (GST), which ranges from 5 to 28 percent. Education and health care services are exempt under GST. 

NPOs fall under three categories in India:

Trusts

A trust is a fund set aside to help a special group of people who might need assistance with living expenses, medical costs, or education. Trusts cannot be dissolved. 

Societies

Societies function more like a business. They’re registered with the state and usually have a governing body. Societies can be dissolved. 

Section 8 companies

Section 8 companies are private limited companies that promote commerce, art, science, sports, education, research, social welfare, religion, charity, or the protection of the environment. Any profits generated are invested back into the organisation to continue its work. 

Make it official

Once you have settled on a suitable business structure, you need to formalise it. While the requirements for each business will vary from structure to structure, if you need to register your company with government officials, you’ll do the following:

1. You'll sign the forms digitally Since registration forms are all filed online. To verify your signature, you need a Digital Signature Certificate. You can learn more about this certificate at the Ministry of Corporate Affairs.

2. Apply for a Director Identification Number (DIN) through the Ministry of Corporate Affairs.  

3. Register your company online through the Ministry of Corporate Affairs, the MCA portal.

4. Once approved, the ministry will send you a Certificate of Incorporation, which means your business or nonprofit is officially set up and recognised.

Once you have completed these steps, you can operate as a legal business entity in India. Congratulations!

Prepare for your next business venture

Starting a new entrepreneurial endeavour requires preparation and organisation. To help you prepare, you might consider taking Wharton’s Entrepreneurship Specialisation on Coursera, a five-course series designed to take you from opportunity identification through launch, growth, financing, and profitability. Sometimes, education can provide the structure you need to start your next significant business venture.