Choosing an entity: Indian Pvt Ltd vs LLP; US Delaware C-corp

1. Core idea and who it's for#

The entity you choose decides whether you can issue shares and options, take venture money, use standard investment documents, and get the tax benefits built for startups. For a deeptech company that expects to raise equity, the answer is nearly always one of three:

• India: a private limited company (Pvt Ltd).
• US: a Delaware C-corporation.
• UK: a private company limited by shares (Ltd).

The other forms all have uses, but they block or complicate venture investment and employee equity. These include the Indian LLP, the US LLC and S-corporation, partnerships, and India's one person company (OPC).

The harder question is usually not the type of entity but which country the parent company sits in . That is covered in 3.15 and 4.03. This playbook assumes you have chosen the country, and helps you pick the form and avoid choices that need an expensive conversion later.

Who it's for: founders incorporating for the first time (4.01), and founders who started as an LLP, LLC or consultancy and now want to raise money.

The one-line rule: if there is any realistic chance of raising equity or granting staff equity, pick the standard venture form in your country from day one.

2. Evidence#

India: Pvt Ltd versus LLP#

• LLPs can't issue the instruments investors use. An LLP cannot issue shares, convertible instruments such as notes or SAFEs, or ESOPs. ESOPs are governed by section 62(1)(b) of the Companies Act and only work cleanly in a company. Practitioners note that most VCs require an LLP to convert to a private limited company before funding. One firm's guide estimates that nearly 99% of funded Indian startups are private limited companies.
• Foreign money is narrower for LLPs. FDI into an LLP is allowed under the automatic route only in sectors open to 100% automatic-route FDI with no performance conditions. Companies can use both the automatic and approval routes.
• Convertible notes are a company-only tool. Only DPIIT-recognised private limited companies can issue convertible notes under the startup exemption, with a minimum of ₹25 lakh per note, converting within 10 years.
• Tax favours companies for growth. LLPs pay 30% plus surcharge, while companies can opt for 22% under section 115BAA. Both can get DPIIT recognition. Converting an LLP into a company later typically takes 30 to 60 working days and costs ₹15,000 to ₹30,000, plus the disruption.

US: C-corporation versus LLC or S-corporation#

• Funds can't easily hold pass-through entities. LLCs pass income through to their owners. That can create unrelated business taxable income for tax-exempt limited partners, such as endowments and pension funds. A C-corporation blocks this, because the company pays its own tax.
• S-corporations are ruled out by their own rules. They allow one class of stock and up to 100 shareholders, and funds can't hold them, so preferred-stock rounds are impossible.
• QSBS needs a C-corporation. The section 1202 exclusion on gains applies only to C- corporation stock. The 2025 US tax law raised the cap, and added partial exclusions after 3 and 4 years for stock issued after 4 July 2025. Check the current rules with a tax adviser.
• Delaware is the default, not the law. Rho's guide puts it simply: the C-corporation is the requirement and Delaware is the default, because standard venture documents assume Delaware law.
• Spinouts: if a university licence is granted to an LLC that later converts, the licence typically needs an assignment and assumption amendment. That is one more reason to start as the right form.

UK#

The private company limited by shares is the default venture vehicle. It works with SEIS and EIS, EMI options, and the BVCA model documents. A UK LLP, like an Indian LLP, can't issue shares or EMI options.

3. Method#

Step 1: Answer four questions#

1. Will you raise equity from angels, VCs or accelerators in the next 3 years? If yes, use the standard venture form in your country.
2. Will you give employees equity? If yes, you need a company that can grant options: ESOPs in India, stock options in the US, EMI options in the UK.
3. Where are your investors, customers and likely exit? This decides the country of the parent company (3.15, 4.03).
4. Is this really a services or consulting business you'll own and draw profit from? If yes, and you won't raise equity, an LLP or LLC may be cheaper to run.

Step 2: Use this default table#

Step 3: Set it up for venture from day one#

• Authorised capital large enough for founder shares and a future pool. In India, set a face value of ₹1 or ₹10 per share and enough authorised capital that you won't need an amendment soon.
• Articles that allow different share classes and the usual transfer restrictions (4.07).
• Founder shares with vesting (3.06).
• In the US, use standard documents from a reputable service or law firm, and file 83(b) elections.

Step 4: If you're already an LLP or LLC#

Convert before your first equity round, not during it. Budget for the time, the cost, the tax review, and any amendments to licences and contracts.

Worked example (illustrative)#

A Pune-based materials startup has two founders. One of them runs the existing engineering consultancy as an LLP, which earns ₹60 lakh a year.

• The question: they plan to raise a pre-seed round from Indian angels within 9 months, and want to give ESOPs to their first three engineers.
• Decision: they keep the LLP for consulting work, and incorporate a new private limited company for the venture. The LLP assigns the relevant IP and know-how to the new company at fair value, supported by a valuer's report.
• Why not convert the LLP? It carries consulting contracts and liabilities that investors don't want. A clean new company makes diligence and ESOPs simpler.
• Watch-out: they agree a written arrangement for any consulting work the LLP does for the company, at arm's length, so the company's IP stays clean.

4. India, US and UK differences#

Notes on alternatives:

• India OPC: a one person company has one shareholder. It must convert when it grows, so it is not a fit for co-founders or investors.
• US public benefit corporation: a Delaware PBC is a C-corporation with a stated public benefit. It is VC-compatible, and some climate and health companies use it.
• Section 8 or non-profit: suits research institutes, not venture-backed companies.

5. Scripts, mistakes and related playbooks#

Scripts#

To a co-founder who prefers an LLP "because it's cheaper":

"An LLP saves some compliance cost now, but we can't give ESOPs or take a SAFE or a VC round into it. Converting later would cost more in time and fees, right when we're raising. Let's start as a private limited company."

To your accountant or company secretary:

"We're setting up for venture funding. Please set the authorised capital and articles so we can issue founder shares, create an ESOP pool and take preference shares without amending them in the next 18 months."

To a US adviser suggesting an LLC for tax losses:

"We expect to raise from funds with tax-exempt LPs, and we want QSBS. Is there any reason not to go straight to a Delaware C-corp?"

Common mistakes#

1. Starting as an LLP or LLC to save money, then converting under deal pressure.
2. Choosing the right form in the wrong country. A Delaware C-corp for an all-India business can mean an expensive reverse flip (3.15).
3. Using a one-person company or proprietorship for a team. It needs restructuring before you can share equity.
4. Tiny authorised capital. It forces an amendment and fees before the first round.
5. Mixing a consultancy and a venture in one entity. Investors don't want consulting liabilities or contracts in the company they fund.
6. Forgetting licences and contracts on conversion. The new or converted company needs assignments.

Related playbooks#

• 3.15 Co-founding across countries and time zones
• 4.01 When to incorporate
• 4.03 Flipping to a Delaware holding company, and reverse-flipping back to India
• 4.04 DPIIT recognition and Startup India benefits
• 4.07 Articles of association and bylaws
• 4.19 FEMA, FDI and ODI rules for foreign money
• 5.01 ESOP pool sizing

Sources#

• TaxAj, LLP vs Pvt Ltd
• National Herald (advertorial), Why high-growth startups choose private limited companies
• Legal Suvidha, How to choose between an LLP and a private limited company
• IncorpX, Choosing the right business structure for funding and LLP vs private limited for IT companies
• Tally Solutions, LLP vs Pvt Ltd
• Rho, C corp vs S corp vs LLC for startups and Do I need a Delaware C corp to raise VC?
• CASRAI, Delaware C-corp vs LLC for a university spinout

This playbook is general information, not legal or tax advice. Entity and tax rules change, so check your choice with a lawyer and accountant in each relevant country. Last checked November 2026.