Types of Companies in India – Private, Public, LLP, OPC & More

In India, there are 9 types of companies, each designed to serve different business needs. These include Private Limited Company, Public Limited Company, One Person Company (OPC), Limited Liability Partnership (LLP), Sole Proprietorship, Section 8 Company (Non-Profit), Producer Company, and more. Depending on the business size, funding requirements, and long-term goals, choosing the right company structure can offer benefits like limited liability, tax advantages, and scalability. For businesses looking to raise capital, a Public Limited Company is a great option, while LLPs offer more flexibility for professional services. Section 8 Companies focus on charitable work, while OPCs offer full control with limited liability. Whether you're a solo entrepreneur or planning for large-scale growth, understanding the types of companies in India ensures you're making the right legal and financial decisions for success.

Think of companies like Flipkart, a popular e-commerce brand; Tata, a family-led global business; and the Reserve Bank of India, responsible for the country’s financial affairs. Each of these operates differently because they follow unique business rules. 

Similarly, there are small family shops, non-profits like CRY that help children, and massive companies like Reliance that serve millions. Based on the examples given above, businesses in India have a variety of choices when selecting their business registration structure, each tailored to their needs, goals, and purpose. In order to better understand these types of companies in India, let’s put them into simple terms.

Overview of Business Structures in India

When starting a business in India, choosing the right company structure is critical. From securing funding to managing liabilities and complying with regulations, your choice impacts every aspect of your business’s future. India offers several business structures tailored to different goals and scales. Understanding these options is the first step toward success.

Definition of a Company in India

A company in India is a legal entity formed by a group of individuals to engage in commercial or industrial activities. It is governed by the provisions of the Companies Act, 2013. A company can either be limited by shares, limited by guarantee, or an unlimited company. The primary distinction of a company lies in its status as a separate legal entity, distinct from its shareholders or directors, with perpetual succession and limited liability.

Importance of Choosing the Right Business Structure

Choosing the appropriate business structure is critical for the long-term success of a business. It determines the level of control, tax obligations, regulatory compliance, and risk exposure. For instance:

• Small businesses may benefit from sole proprietorships or partnerships for simplicity.
• Startups and SMEs often prefer private limited companies due to their scalability, limited liability, and access to funding.
• Professional service firms might lean toward LLPs for operational flexibility and limited liability. Selecting the right structure can enhance operational efficiency, ensure compliance, and attract investors.

Legal Framework for Company Formation in India

A company in India is a legal entity formed by individuals or groups, registered under the Companies Act, 2013, with a common objective. It has a distinct legal identity, meaning it can own property, enter into contracts, and sue or be sued, separate from its members. Companies can be created for profit, social causes, or government purposes.

Definition of the Companies Act, 2013

The Companies Act, 2013, is a comprehensive law governing the incorporation, regulation, responsibilities, and dissolution of companies in India. It provides a legal framework for all types of companies, including private limited, public limited, one-person companies, and others. The Act aims to enhance corporate governance, improve compliance mechanisms, and facilitate ease of doing business.

When Did It Come Into Action?

The Companies Act, 2013, received Presidential assent on August 29, 2013, replacing the Companies Act of 1956. It came into effect in phases:

• April 1, 2014: Major provisions became effective, including rules for company incorporation, directors’ duties, and compliance.
• October 1, 2014: Provisions related to corporate social responsibility (CSR) and other regulatory aspects were implemented.

Amendments to the Companies Act, 2013

Over time, the Companies Act, 2013, has been amended to address emerging business needs and streamline regulations. Here are the major amendments:

1. Companies (Amendment) Act, 2015

• Simplified the process for private companies to accept deposits.
• Exempted private companies from appointing auditors for certain categories.
• Improved flexibility for related party transactions.

2. Companies (Amendment) Act, 2017

• Aimed to enhance the ease of doing business.
• Simplified the incorporation process with fewer forms and approvals.
• Introduced changes to corporate social responsibility (CSR) compliance.

3. Companies (Amendment) Act, 2019

• Introduced fast-track mergers for startups and small companies.
• Allowed certain offenses to be handled at the administrative level instead of courts.
• Tightened compliance and governance norms for corporate fraud.

4. Companies (Amendment) Act, 2020

• Decriminalised minor procedural offences to reduce litigation and encourage entrepreneurship.
• Enhanced compliance requirements for independent directors.
• Eased norms for producer companies and certain startups.

5. Companies (Amendment) Act, 2021

• Increased the paid-up capital and turnover thresholds for small companies, encouraging small enterprises.
• Allowed One Person Companies (OPCs) to grow without restrictions on paid-up capital or turnover.
• Made it easier for NRIs to incorporate OPCs in India.

Impact of the Amendments

These amendments have progressively:

1. Simplified the compliance process for small and medium enterprises (SMEs).
2. Enhanced corporate governance by introducing stricter penalties for non-compliance.
3. Promoted ease of doing business by digitising and streamlining processes.
4. Encouraged innovation and entrepreneurship through relaxed norms for startups.

The Companies Act, 2013, continues to evolve, ensuring businesses in India operate with accountability, transparency, and efficiency.

Limited Liability Partnership Act, 2008

The Limited Liability Partnership (LLP) Act governs LLPs, which combine the advantages of partnerships and limited liability. LLPs are a preferred structure for small businesses and professional services, as partners’ liabilities are limited to their contributions.

When Did It Come Into Action?

The LLP Act received Presidential assent on January 7, 2009, and came into effect on March 31, 2009.

Amendments

LLP (Amendment) Act, 2021:

• • Decriminalized minor offenses to make LLPs more business-friendly.
  • Allowed LLPs to issue non-convertible debentures (NCDs) for fundraising.
  • Introduced the concept of “Small LLPs” to reduce compliance for smaller entities.

Banking Regulation Act, 1949

This act governs the regulation of banking companies in India, ensuring the stability and efficiency of the banking system. It provides guidelines for licensing, capital requirements, and management.

When Did It Come Into Action?

The act came into force on March 16, 1949.

Key Amendments

Amendments in 2020:

• • Extended the act’s provisions to cooperative banks, improving their regulation.
  • Enabled the Reserve Bank of India (RBI) to intervene in the management of stressed banks.

Insurance Act, 1938

The Insurance Act regulates the insurance business in India, including life, health, and general insurance. It ensures consumer protection and the financial soundness of insurers.

When Did It Come Into Action?

The act was passed on July 26, 1938, and became effective the same year.

Amendments

Insurance Laws (Amendment) Act, 2015

• • Increased the foreign direct investment (FDI) limit in insurance from 26% to 49%.
  • Introduced consumer protection measures and streamlined claims processes.

Amendments in 2021:

• • Raised the FDI cap in the insurance sector to 74%.

Co-operative Societies Act, 1912

This act governs cooperative societies, which are member-driven organizations focused on mutual benefit, such as credit cooperatives or agricultural producers.

When Did It Come Into Action?

The act came into force on March 1, 1912.

Amendments

• Many state governments have introduced their own co-operative acts to supplement or modify the central act for regional needs.
• The 97th Constitutional Amendment (2011) enhanced the autonomy and democratic functioning of cooperative societies.

Indian Partnership Act, 1932

The act regulates traditional partnerships where partners share unlimited liability for the business’s obligations.

When Did It Come Into Action?

The act came into effect on October 1, 1932.

Amendments

Although the act has not seen major recent amendments, its significance has reduced with the introduction of the LLP Act, 2008.

Securities Contracts (Regulation) Act, 1956

This act regulates the trading of securities and governs stock exchanges, ensuring transparency and investor protection.

When Did It Come Into Action?

The act became effective on February 20, 1957.

Amendments

2007:

• • Introduced provisions for the dematerialization of shares.
  • Strengthened rules for derivative trading.

Foreign Exchange Management Act (FEMA), 1999

FEMA governs cross-border financial transactions and regulates foreign exchange markets in India.

When Did It Come Into Action?

FEMA came into force on June 1, 2000, replacing the Foreign Exchange Regulation Act (FERA).

Amendments

2019:

• • Liberalized rules for foreign investments in startups and other sectors.
  • Strengthened penalties for non-compliance in foreign transactions.

Industrial Development and Regulation Act, 1951

This act governs large-scale industrial companies, ensuring adherence to national industrial policies and promoting fair competition.

When Did It Come Into Action?

The act came into force on May 8, 1952.

Amendments

The act has undergone several amendments to deregulate industries and liberalize licensing, particularly after 1991’s economic reforms.

Insolvency and Bankruptcy Code (IBC), 2016

The IBC provides a unified framework for resolving insolvency and bankruptcy for companies and individuals.

When Did It Come Into Action?

The IBC became effective on May 28, 2016.

Amendments

2020:

• • Introduced a fast-track insolvency process for MSMEs.
  • Suspended insolvency proceedings for defaults due to COVID-19.

Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006

This act classifies and regulates micro, small, and medium enterprises, offering benefits like tax exemptions, subsidies, and simplified compliance.

When Did It Come Into Action?

The act came into force on October 2, 2006.

Amendments

2020:

• • Revised the definition of MSMEs based on turnover and investment thresholds.
  • Introduced incentives for startups and manufacturing units.

Main Types of Companies in India

In India, companies are broadly categorized into the following 9 business entites types, based on various criteria:

1. Private Limited Company

A private entity with restricted share transfer, suitable for small to medium-sized businesses seeking limited liability and private investment. Popular among startups due to its flexibility and control.

Features

• Shares are privately held, with a maximum of 200 shareholders.
• Requires a minimum of 2 directors and 2 shareholders.
• Cannot freely transfer shares to the public.

Eligibility Criteria

• Minimum 2 shareholders and directors (directors can also be shareholders).
• No minimum paid-up capital requirement.
• Must register under the Companies Act, 2013.

Advantages

• Limited liability for shareholders.
• Easier fundraising from private investors.
• Less compliance compared to public companies.

Disadvantages

• Cannot raise capital from the public.
• Limited scalability due to restrictions on share transfers.

Examples: Flipkart Internet Pvt Ltd, Zomato Pvt Ltd.

2. Public Limited Company

A company that raises funds by trading shares publicly, ideal for large-scale businesses looking for credibility and access to significant capital.

Features

• Shares can be publicly traded on stock exchanges.
• Requires a minimum of 7 shareholders and 3 directors.
• No restriction on the number of shareholders.

Eligibility Criteria

• Minimum 7 shareholders and 3 directors (at least one resident in India).
• Must comply with SEBI regulations if listed.
• Mandatory filing with the Registrar of Companies (RoC).

Advantages

• Easier access to capital through public offerings.
• Greater credibility and brand value.
• Limited liability for shareholders.

Disadvantages

• High regulatory and compliance costs.
• Increased scrutiny and transparency requirements.

Examples: Tata Motors Ltd., Reliance Industries Ltd., and Infosys Ltd.

3. One Person Company (OPC)

A single-owner company offering limited liability, designed for solo entrepreneurs who want to scale while retaining full control.

Features

• A company with a single owner.
• Limited liability for the owner.
• Automatically converts to a private limited company if turnover exceeds ₹2 crore.

Eligibility Criteria

• Only Indian citizens and residents can incorporate an OPC.
• A nominee must be appointed during incorporation.

Advantages

• Sole control with limited liability.
• Easy to manage and comply with laws.
• Suitable for small-scale businesses.

Disadvantages

• Limited to one shareholder.
• Higher compliance costs compared to sole proprietorships.

Examples: Many small-scale consultancies and startups operate as OPCs.

4. Limited Liability Partnership (LLP)

A hybrid structure combining the flexibility of a partnership with limited liability, making it a favorite for professional firms and small businesses.

Features

• Combines the benefits of a partnership and limited liability.
• No minimum capital requirement.
• Separate legal entity from its partners.

Eligibility Criteria

• At least 2 partners, one of whom must be a resident of India.
• Must register with the Ministry of Corporate Affairs (MCA).

Advantages

• Limited liability for partners.
• Flexible management structure.
• Fewer compliance requirements compared to companies.

Disadvantages

• Cannot raise funds from the public.
• Limited scalability for larger enterprises.

Examples: Law firms, accounting firms, and small IT consultancies often operate as LLPs.

5. Partnership Firm

A simple structure where partners share profits and liabilities, ideal for small enterprises looking for ease of operation without formal registration.

Features

• Owned and managed by two or more individuals under a partnership agreement.
• Partners share unlimited liability.
• Not a separate legal entity.

Eligibility Criteria

• Minimum of 2 partners.
• Partnership deed specifying roles and profit-sharing ratios.

Advantages

• Simple to establish with minimal compliance.
• Flexible decision-making among partners.

Disadvantages

• Unlimited personal liability for business debts.
• Lack of continuity if a partner exits.

Examples

• Small retail businesses, local trading firms.

6. Sole Proprietorship

A business run and owned by a single individual, offering simplicity and direct control but with unlimited personal liability.

Features

• Owned and managed by a single individual.
• No distinction between the business and the owner.
• Easy to set up with minimal documentation.

Eligibility Criteria

• Open to any individual willing to take full responsibility for the business.
• No formal registration required, but local licenses may apply.

Advantages

• Easy and inexpensive to start.
• Full control and profits go to the owner.

Disadvantages

• Unlimited personal liability.
• Limited access to capital and growth opportunities.

Examples: Local grocery stores, freelance consultants.

7. Section 8 Company (Non-Profit Organizations)

Non-profit organizations focused on social, educational, or charitable objectives, with profits reinvested into their mission.

Features

• Formed for charitable purposes like education, arts, or social work.
• Operates without profit motives; all profits are reinvested into the company’s objectives.
• Exempted from using “Limited” or “Private Limited” in the company name.

Eligibility Criteria

• Minimum 2 shareholders and 2 directors required.
• Directors must be Indian residents, and the company must comply with the Companies Act, 2013.
• Approval from the Central Government is mandatory during registration.

Advantages

• Tax benefits for both the company and donors under Section 12A and 80G of the Income Tax Act.
• Credibility due to stringent compliance and auditing.
• Support from government grants and donations.

Disadvantages

• High regulatory and compliance burdens.
• No profit distribution to members or shareholders.

Examples: CRY (Child Rights and You)., Teach for India.

8. Producer Company

A collective for farmers or producers to improve economic benefits through shared resources and market access, focusing on agriculture and allied activities.

Features

• Focused on production activities such as farming, fishing, or forestry.
• Aimed at improving the economic conditions of its members.
• Operates with a cooperative model but is regulated under the Companies Act, 2013.

Eligibility Criteria

• Minimum of 10 producers or 2 producer institutions required.
• At least 5 directors for governance.

Advantages

• Facilitates collective growth and economic support for producers.
• Access to government subsidies and loans.
• Promotes better price realization for members’ produce.

Disadvantages

• Restricted to production-related activities.
• Cannot operate outside its member base.

Examples: Amul (Dairy cooperative producer company)., IFFCO (Indian Farmers Fertilizer Cooperative Limited).

9. Nidhi Company (Mutual Benefit Society)

A mutual benefit society encouraging savings and lending among its members, commonly operating within small communities.

Features

• Focuses on cultivating savings and lending among members.
• Membership is restricted to individuals within a specific community or region.
• Governed under Section 406 of the Companies Act, 2013.

Eligibility Criteria

• Minimum paid-up equity capital of ₹5 lakh at incorporation.
• Must have at least 200 members within one year of registration.
• At least 20% of net owned funds must be used for unencumbered deposits.

Advantages

• Encourages savings and provides financial assistance to members.
• Low-risk operations since transactions are limited to members.
• Simple and low-cost structure.

Disadvantages

• Cannot conduct business with non-members.
• Limited scope for growth outside the community.

Examples: Margadarsi Nidhi Ltd., Sahara India Nidhi Limited.

Differences Between Business Structures in India

Choosing the right business structure is crucial as it impacts compliance, liability, tax obligations, and scalability. Here’s a detailed comparison of key differences across major business structures in India:

Business Structure	Compliance Requirements	Liability of Owners	Tax Implications	Ease of Incorporation	Suitability Based on Business Size
Private Limited Company	High – Requires annual filings, board meetings, audits, and adherence to RoC norms.	Limited liability	Corporate tax (~25-30%), dividend tax applies.	Moderate – Requires RoC filings, a minimum of 2 shareholders.	Small to medium businesses seeking private funding.
Public Limited Company	Very High – SEBI regulations, public disclosures, mandatory shareholder meetings.	Limited liability	Corporate tax (~25-30%), dividend tax applies.	Complex – Compliance with SEBI norms, a minimum of 7 shareholders.	Large-scale businesses aiming for public investment.
One Person Company (OPC)	Moderate – Annual filings and audits required, less complex than private limited companies.	Limited liability	Corporate tax (~25-30%).	Easy – Single owner with minimal documentation needed.	Small-scale businesses owned by solo entrepreneurs.
Limited Liability Partnership (LLP)	Simplified – Annual statement of accounts and income tax filings required.	Limited liability	Flat 30%, no dividend tax.	Simplified – Requires MCA registration and partnership agreement.	Small to medium businesses or professional firms.
Partnership Firm	Minimal – No mandatory registration unless specified in the partnership deed.	Unlimited liability	Flat 30%, taxed as firm income.	Very Easy – Only requires a partnership deed.	Small businesses with trusted partners.
Sole Proprietorship	Low – No formal compliance, local business licenses may apply.	Unlimited liability	Taxed as personal income under slab rates.	Easiest – No formal registration required.	Micro-businesses or individual professionals.
Section 8 Company	High – Requires RoC filings, CSR reporting, and detailed audits.	Limited liability	Tax exemptions under Section 80G and 12A.	Complex – Central government approval needed.	Charitable or non-profit organizations.
Producer Company	Moderate – Annual audits and filings required for governance.	Limited liability	Corporate tax (~25-30%).	Moderate – Requires a minimum of 10 producers and formal process.	Agricultural or cooperative groups pooling resources.
Nidhi Company	Moderate – Specific compliance for member savings and lending activities.	Limited liability	Taxed as NBFC (Non-Banking Financial Company).	Moderate – Requires capital thresholds and member filings.	Member-focused savings and financial organizations.

Factors to Consider When Choosing a Business Structure

Choosing the right business structure is a critical decision that impacts a company’s operations, growth, and legal obligations. Here are the key factors to consider:

Nature of Business

Relevance: The type of activities your business will undertake should guide your choice. For example:

• • A Producer Company is ideal for agricultural or allied activities.
  • A Section 8 Company suits charitable or social welfare initiatives.

Complexity: Businesses with simple operations may opt for a Sole Proprietorship or Partnership Firm, while larger businesses needing clear governance may prefer a Private Limited or Public Limited Company.

Industry Regulations: Certain industries, like finance (e.g., Nidhi Companies) or insurance, require specific structures.

Number of Founders

Single Founder: Suitable options include Sole Proprietorship for ease or One Person Company (OPC) for limited liability and scalability.

Two or More Founders:

• • For small, trust-based partnerships, consider a Partnership Firm or LLP.
  • For broader ownership or future growth, a Private Limited or Public Limited Company is better.

Large Founding Group: Businesses with multiple stakeholders (e.g., cooperative groups) can explore Producer Companies or Public Limited Companies for structured governance.

Funding Requirements

Internal or Limited Funding:

• • A Private Limited Company is ideal for attracting venture capital or private investors.
  • LLPs and Partnership Firms rely on pooled resources from partners.

Public Investment: A Public Limited Company allows capital to be raised through share offerings, making it suitable for large-scale businesses.

No External Funding Needs: Sole proprietorships or OPCs are sufficient for businesses reliant on personal or small-scale funding.

Non-Profit Donations: Section 8 Companies can receive grants and donations with tax benefits.

Long-term Business Goals

Growth and Scalability: Businesses planning to expand operations or scale significantly should consider Private Limited or Public Limited Companies for flexibility and funding options.

Legacy or Succession Planning:

• • A LLP or Private Limited Company ensures continuity even if partners or founders exit.
  • Sole Proprietorships cease to exist with the owner, making them unsuitable for long-term goals.

Social or Charitable Impact: For non-profit objectives, a Section 8 Company offers the right framework.

Niche and Cooperative Models: A Producer Company or Nidhi Company caters to specific member-driven or financial goals.

Conclusion

As Prime Minister Narendra Modi aptly stated, “It’s not the government’s business to be in business.” This vision highlights the importance of empowering entrepreneurs like you to drive economic growth and innovation. Choosing the right business structure is the first step toward building a successful enterprise. Let Vakilsearch simplify the process for you so you can focus on making your business dreams a reality

With over 10 years of experience, Vakilsearch has helped more than 5,00,000 businesses across India start their journey. Our experts make the complicated steps of the Companies Act, 2013, simple and stress-free, ensuring your business is built on a solid legal foundation. Trusted by startups, SMEs, and established enterprises, we’re here to guide you every step of the way.