What Will You Choose From One Person Company, Limited Liability Partnership and Private Limited Company

Regular people in business functioning as sole proprietors prefer one-person companies (OPCs), while OPCs enable a sole proprietor to advertise his industry, it isn’t a typical entity for startups.

OPCs are not recommended for startups because:
Enterprise investors (VCs) avoid OPCs as the shares can be held by one person only and equity investment by VCs isn’t available.
Also, once the turnover of an OPC exceeds Rs 2 crores or share capital exceeds Rs 50 lakhs, the OPC is required to convert into a private company mandatory.
Limited liability partnership (LLP) has been added in the description of the term `startup’. LLPs are a hybrid model of a company and an organization which provides limited liability to the partners and offers a corporate structure. LLP model is a new concept, various businesses have adopted it, with professional services companies widely selecting the LLP formation.

However, for startups, especially those looking at VC funding, an LLP structure is not ideal in the long run because

an LLC is not able to distribute stock options to its representatives with the same tax benefits as a private company
to become a stockholder in LLP, one must become a partner and with it comes duties towards the entity and VC do not like this, and therefore, they prefer to invest in a private limited company.
Data – MCA report suggest the same
According to the latest yearly report released by the Ministry of Corporate Affairs (MCA), the number of new private companies increased up by 36% in 2015-16. It is expected that the current year will see a further increase in the name of registrations of private companies as a result of ‘Startup India’ program.

Pvt Limited company registration – why it is suitable?
Conclusion

We advise a startup to incorporate a Private Limited company if it seeks VC‘s funding or angel investment in the future. Private Limited company registration is simple and easy with LegalRaasta online Private Limited company registration. We have helped over 450 clients to incorporate a Private Limited company.

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