"Should I open a Private Limited company?" is the most common question I get, and the honest answer is usually no. Saying so costs me fee income, which is exactly why it is worth saying.
Incorporation gets sold as a milestone — a signal that the business has become serious. It is not a milestone. It is a structure, and structures have running costs. The question is not whether you have arrived. It is whether the structure earns its keep.
The line that actually matters
A company wins when profit stays inside it. That is the whole test.
If you withdraw everything you earn to live on, a Private Limited costs you more than a proprietorship. You pay tax inside the company, then tax again when you take the money out as salary or dividend, plus roughly ₹1.2–2.5 lakh a year in compliance. If you retain profit to hire, build product, or hold IP, the arithmetic reverses.
A company only wins when the profit stays inside it. Withdraw everything, and you have bought a more expensive version of what you had.
The three structures, honestly compared
| Proprietorship | LLP | Private Limited | |
|---|---|---|---|
| Tax on profit | Slab rates | 30% + surcharge | 22–25% depending on regime |
| Tax on withdrawal | Nil — already yours | Nil — partner share exempt | Dividend or salary taxed at slab |
| Presumptive scheme | Available | No | No |
| Annual compliance cost | ₹15–40k | ₹40–80k | ₹1.2–2.5L |
| Liability shield | None | Yes | Yes |
| Can raise investment / issue ESOP | No | Difficult | Yes |
Indicative. Actual rates depend on the regime elected and turnover; take advice on your own facts.
A decision rule you can apply yourself
Work down this list
- Under ₹50 lakh in receipts? Stay a proprietorship. The presumptive scheme keeps tax low and paperwork light. A company gains you nothing.
- Above that, but withdrawing everything? Proprietorship with proper books. Revisit next year.
- Retaining profit, but no team, product or investors on the horizon? An LLP gives you the liability shield without the dividend cost.
- Retaining profit, and building something — a team, a product, investors, or an eventual buyer? This is where a Private Limited starts paying for itself.
The part people forget until it is expensive
If you do incorporate, three things must happen in the same month or the structure is cosmetic.
Trademark the mark in the operating classes, filed in the entity's name or assigned to it.
Assign or licence the assets — the content library, the customer list, the domain, the channel — to the entity under a written deed with consideration stated. Without this, the company earns revenue but owns nothing, and any due diligence stalls.
Put a personality-rights licence in place where the business trades on a founder's name or likeness. This is also what makes the company's income defensible as the company's income rather than the individual's.
Get this wrong and the department can argue the income was always the individual's regardless of who invoiced — a diversion-of-income view that nobody wants to argue at assessment.
What I tell people in the room
Incorporate when the structure solves a problem you actually have: limited liability because you have real exposure, ESOPs because you are hiring people who want equity, a clean cap table because someone is going to invest, or an entity to hold IP because there is IP worth holding.
Incorporate because it sounds more established, and you have bought ₹1.5 lakh a year of compliance and a second layer of tax in exchange for a letterhead.
If you want this worked through against your own numbers rather than in the abstract, that is a short conversation and usually a clear answer.
This article is general guidance as at 29 July 2026 and is not advice on any specific situation. References reflect the Income-tax Act, 2025 (in force from 1 April 2026), the CGST and IGST Acts as amended, and GST rates effective 22 September 2025. Please obtain advice on your own facts before acting.