One-person companies, LLPs are driving the Indian economy's formalization

Mint

6 days ago

NEW DELHI
:
India is witnessing a rise in businesses with simplified compliance requirements—such as one-person companies and limited liability partnerships (LLPs)—indicating growing formalization of the economy, according to data from the ministry of corporate affairs.
In the January-May period, 6,281 'one-person companies' were formed, 26% more than the number of such flexible business ownership structures created in the year-ago period.
April and May saw the number of such businesses rise by 56% and 36% year-on-year, respectively.
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These are entities owned by one individual, which, unlike sole proprietorships, have the flexibility of limited liability of a company. This simpler company format gives solo entrepreneurs the flexibility to formalize their businesses, access funds, including bank loans, and keep compliance comparatively easy.
A company, on the other hand, requires a minimum of two shareholders and has to comply with more detailed regulatory requirements.
In 2021, the government removed a forced conversion requirement for one-person companies to public limited or private limited companies after crossing a paid-up capital and sales-based threshold to improve their appeal and make doing business easier for start-ups.
The government also reduced the residency limit for an Indian citizen to set up a one-person company from 182 days to 120 days and also allowed non-resident Indians (NRIs) to set up such structures in the country.
While the Companies Act of 2013 allowed one-person companies, LLPs have existed for a longer time. These hybrids between partnerships and companies were allowed in 2008 under a dedicated LLP law.
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Incorporation of LLPs saw a 27% jump in the January-June period in 2025 to 43,489 from the year-ago period. Barring February, when LLP registrations moderated, LLP incorporation so far this year has improved between 18% and 62% annually, data showed.
Getting formal
The rise in one-person companies and LLP registrations reflects growing formalisation and entrepreneurial activity in the country, said Ritesh Prakash Adatiya, director, NPV Insolvency Professionals Pvt. Ltd.
Simplified incorporation processes, lower compliance burdens, and tax incentives have made these structures attractive, especially for solo entrepreneurs and small businesses, he said.
'Also, the rise of the gig economy and digital services has encouraged more professionals to formalize their operations. This trend supports greater economic transparency, access to finance, and job creation," he added.
LLPs have become a popular business vehicle for service sector enterprises, especially start-ups, because of the flexibility allowed in the way they can be structured and the benefit of limited liability—partners' personal wealth is not at risk if the firm fails, except in cases of fraud.
To be sure, entities that get incorporated either as a company, LLP or as one-person company are far fewer than those that operate as sole proprietorships and other forms of unincorporated enterprises in the country, which are major job creators and are usually referred to as the informal sector.
Mint reported on 24 December, citing the statistics ministry's estimates, that the number of non-farm firms comprising proprietorships, partnerships, and self-help groups increased 12.84% to 73.4 million between October 2023 and September 2024.
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Compared to 73.4 million unincorporated enterprises, India has 18.9 million companies, over 401,000 LLPs and over 68,000 one-person companies.