How to Start a Franchise Business in India?

Mar 28, 2025
Private Limited Company vs. Limited Liability Partnerships

Starting a franchise business in India is a lucrative opportunity for aspiring entrepreneurs. Franchising allows individuals to operate a business under an established brand with a proven business model. It offers benefits like brand recognition, operational support, and reduced risk compared to starting an independent venture.

This blog will walk you through everything you need to know about franchising in India.

Table of Contents

What Is The Meaning of Franchising a Business?

Franchising is a business model where a franchisor grants the rights to an individual (franchisee) to operate under its brand, using its products, services, and business processes. The franchisee pays a fee and agrees to operate under the franchisor’s guidelines in exchange for brand licensing, training, operational support, and marketing assistance.

The franchising model benefits both parties:

  • Franchisor Benefits: Rapid expansion, increased brand reach, and revenue from franchise fees.
  • Franchisee Benefits: Access to a recognised brand, reduced startup risk, and operational guidance.

Key aspects of franchising include:

  • Brand Licensing: The franchisee gets permission to use the franchisor's brand name and trademarks.
  • Operational Support: Training, marketing, and business strategy support are provided.
  • Profit-sharing Agreements: Franchisees pay royalties or a percentage of revenue to the franchisor.

Types of Franchises

Franchises can be categorised based on their structure and operational model:

Product Distribution Franchise:

  • Franchisee sells the franchisor’s products under its brand.
  • Examples: Automobile dealerships (Maruti Suzuki), and soft drink bottlers (Coca-Cola).

Business Format Franchise:

  • Franchisee adopts the entire business model, including operations, branding, and marketing.
  • Examples: McDonald’s, Domino’s, KFC.

Manufacturing Franchise:

  • Franchisee manufactures and sells the franchisor’s products under its brand name.
  • Example: Food and beverage brands allowing third-party bottlers.

Job Franchise:

  • A low-cost model where individuals operate small-scale service businesses.
  • Examples: Cleaning services, travel agencies, real estate consultancy.

How Long Does It Take To Franchise a Business?

Franchising a business typically takes between six months to two years, depending on factors like:

  • Industry type and regulatory requirements.
  • Business readiness and operational scalability.
  • Development of legal and training documents.
  • Marketing efforts to attract franchisees.

How Much Should It Cost To Franchise a Business?

The cost to franchise a business can vary significantly based on factors like industry, business model, and support provided. On average, franchising a business may cost between ₹5 lakh to ₹50 lakh or more in India. Key expenses include:

  • Franchise Fee: ₹2 lakh to ₹10 lakh (varies by brand reputation).
  • Legal and Registration Fees: ₹50,000 to ₹2 lakh.
  • Training and Support Costs: ₹1 lakh to ₹5 lakh.
  • Marketing and Branding Expenses: ₹1 lakh to ₹3 lakh.
  • Infrastructure Setup: Varies depending on the business type.

Additional factors like franchise location, infrastructure requirements, and marketing strategy impact the overall investment.

Advantages of Franchising a Business

  1. Rapid Expansion: Scale business operations quickly with minimal capital investment.
  2. Lower Financial Risk: Franchisees fund their business setup, reducing financial burden.
  3. Brand Recognition: Established branding makes it easier to attract customers.
  4. Operational Support: Franchisees receive training, marketing, and business guidance.
  5. Access to Motivated Franchisees: Entrepreneurs invest time and money, ensuring dedication to success.

Disadvantages of Franchising a Business

  1. Loss of Control: Franchisees operate independently, which can lead to inconsistencies.
  2. Reputation Risk: Poorly managed franchises can damage brand image.
  3. Legal & Financial Complexity: Requires detailed agreements and ongoing compliance.
  4. Ongoing Training & Support: Continuous investment in franchisee development is necessary.

Franchise Vs Licensing: What’s The Difference?

Franchising Licensing
Control High Control Low control
Legal obligations Extensive with detailed agreements Less strict, focussed on intellectual property rights
Investment Higher due to training, support, and operational costs Lower primarily for brand usage
Brand usage Franchisee must follow strict brand guidelines Licensee can identify how the brand can be used
Revenue model Royalties, franchise payments, ongoing payments One-time or periodic licensing fees

How to Start a Franchise Business - 8 Key Steps

Step 1: Determine If Franchising is Right For Your Business

Before diving into franchising, evaluate whether your business is scalable, profitable, and replicable. Ask yourself:

  • Is there consistent demand for my product or service?
  • Can my business model be easily duplicated in different locations
  • Do I have strong branding and operational processes in place?

Not all businesses are fit for franchising. A successful franchise model requires a proven track record, solid profit margins, and strong brand appeal to attract potential franchisees.

Step 2: Protect Your Business’s Intellectual Property

Your brand is one of your most valuable assets. Before offering franchises, secure trademarks, copyrights, and proprietary processes to prevent misuse and ensure brand consistency.

Step 3: Prepare Your Franchise Disclosure Document (FDD)

The Franchise Disclosure Document (FDD) is a legal document that provides prospective franchisees with full transparency about their business. This document must comply with franchise laws and typically includes:

  • Franchise fees and ongoing costs
  • Training and support provided
  • Franchisor and franchisee responsibilities
  • Earnings potential (if disclosed)
  • Legal obligations and dispute resolution process

A well-structured FDD builds trust with potential franchisees and helps you stay compliant with franchise laws.

Step 4: Draft a Franchise Agreement

The franchise agreement is a legally binding contract outlining the rights and responsibilities of both the franchisor (you) and the franchisee. Key elements to include:

  • Operational guidelines – How franchisees must run the business
  • Fee structure – Initial franchise fees, royalties, and marketing fund contributions
  • Territory rights – The defined area where the franchisee can operate
  • Training and support – What assistance franchisees will receive
  • Exit clauses – Terms under which a franchise can be sold or terminated

This document ensures both parties are aligned and protects your brand from misuse.

Step 5: Register Your Company

Depending on your state and region, you may need to register your franchise with government authorities before selling franchise units. Registration is not mandatory, but it is required to obtain GST registration depending on the turnover.

Head over to Razorpay Rize to Register your Company.

Step 6: Compile an Operation Manual

A franchise operations manual is a step-by-step guide that helps franchisees run the business successfully while maintaining brand consistency. It should cover:

  • Day-to-day business processes
  • Hiring and training staff
  • Customer service guidelines
  • Marketing and advertising strategies
  • Financial management and reporting

Step 7: File or Register Your FDD

Once your FDD is finalised, keep it securely stored for easy access and updates as needed. While the FDD is a mandatory document, filing requirements vary by state.

Step 8: Set Strategy To Achieve Your Sales Goal

Develop marketing and recruitment strategies to attract the right franchise partners. The strategy should be tailored to your business, community, and growth objectives. Here are some effective ideas to consider:

  • Provide a referral incentive for those who bring in qualified franchisee applicants.
  • Develop a strategic marketing plan from the start to capture attention.
  • Recruit sales professionals who understand your business and its story.

5 Strategies to Help You Succeed at Franchising

  1. Maintain Brand Consistency: Implement strict guidelines for uniformity across locations.
  2. Select the Right Franchisees: Screen candidates for skills, experience, and commitment.
  3. Provide Ongoing Training & Support: Regularly update franchisees with best practices.
  4. Implement Effective Marketing Strategies: Invest in advertising and localised promotions.
  5. Ensure Strong Financial Management: Monitor franchise performance and optimize cost structures.

Case Studies of Successful Franchise Businesses

Franchising is a proven business model that allows entrepreneurs to leverage established brands and systems for success. Below are examples of successful franchise businesses, showcasing their revenue, profit margins, and operational highlights.

1. McDonald's

  • Industry: Quick-Service Restaurant (QSR)
  • Investment: ₹6–14 crores
  • Profit Margin: 50–60%
  • Break-even Period: 4–5 years
    McDonald’s is one of the most profitable franchises globally due to its standardized operations and strong brand recognition. In India, its franchise model offers high footfall and consistent demand, making it a lucrative investment.

2. Baskin Robbins

  • Industry: Ice Cream and Dessert
  • Investment: ₹10–20 lakhs
  • Profit Margin: 50–60%
  • Break-even Period: 6–12 months
    With over 800 outlets in India, Baskin Robbins has built a strong presence in the dessert market. Its diverse flavors and year-round demand ensure steady sales and excellent returns for franchisees.

3. Haldiram

  • Industry: Food and Snacks
  • Investment: ₹30 lakhs–₹6 crores (depending on store format)
  • Profit Margin: 50–60%
  • Break-even Period: 2–3 years
    Haldiram is a trusted name in Indian snacks and sweets. Its franchise model offers multiple formats, including quick-service restaurants and dine-in outlets, ensuring high profitability backed by a loyal customer base.

4. Marco’s Pizza

Marco’s Pizza achieved remarkable growth with a revenue increase of 23.5% in one year by opening 113 stores. The brand focuses on strategic revenue-boosting approaches, making it one of the fastest-growing pizza franchises globally.

5. Lenskart

  • Industry: Eyewear Retail
  • Investment: ₹25 lakhs
  • Profit Margin: Approx. 33%
    Lenskart is India’s largest eyewear brand, offering trendy products such as prescription glasses and sunglasses. With innovative features like "Try Before You Buy," its franchise model generates average monthly sales of ₹9 lakhs, making it ideal for urban markets

Final Thoughts

Franchising can be a great way to start a business without building everything from scratch. You get a known brand, a proven business model, and ongoing support but it’s not a shortcut to success. It still takes effort, investment, and commitment to make it work.

The key is choosing the right franchise. Think about what fits your skills, budget, and long-term goals. A great brand in the wrong location or with poor financial planning can still struggle. Do your homework, understand the costs, and be ready to follow the franchisor’s guidelines.

Frequently Asked Questions

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Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

How do I open up my own franchise?

To start your own franchise-

  • You’ll need to create a business model that can be replicated. This involves building a strong brand, developing detailed operational processes, and ensuring your business is profitable.
  • Next, you’ll need to register as a franchisor, create legal agreements (Franchise Disclosure Document & Franchise Agreement), and establish a support system for franchisees.
  • Once everything is in place, you can start recruiting franchise partners.

Do I need to register my franchise?

Yes, in most countries, you need to register your franchise before offering it to potential franchisees. The requirements vary by region—some require a Franchise Disclosure Document (FDD) and legal agreements, while others may have additional licensing requirements.

Which franchise is best for beginners?

For beginners, it’s best to choose a franchise with low initial investment, strong brand recognition, and comprehensive support. Some beginner-friendly franchises include:

  • Food & Beverage: Subway, Dunkin’
  • Retail: Miniso, FirstCry
  • Education & Coaching: Kumon, The Learning Experience
  • Service-Based: Urban Company

Look for franchises with a simple operating model and strong training programs to make the transition smoother.

Which franchise is most profitable?

Profitability depends on location, investment, and management. Before investing, analyse franchise fees, profit margins, and ongoing costs to determine the best fit.

Are franchise fees monthly?

Most franchises charge ongoing royalty fees, which can be monthly, quarterly, or annually. These fees are typically a percentage of your revenue (ranging from 4% to 12%) or a fixed amount. Some franchises also charge additional marketing or operational fees.

Is licensing an alternative to franchising?

Yes, licensing can be an alternative to franchising, but it’s a different business model. In licensing, you grant permission to use your brand, trademark, or product without controlling business operations. In franchising, you provide a complete business model, training, and support while maintaining control over operations. Licensing offers more flexibility but less oversight, while franchising ensures brand consistency but comes with more regulations.

Related Posts

Form MGT-8: Applicability, Format, and Requirements

Form MGT-8: Applicability, Format, and Requirements

For businesses, staying compliant with regulations isn’t just about ticking boxes—it’s about building trust with investors, customers, and regulators. One such important compliance requirement is Form MGT-8, a certification that ensures companies are meeting legal obligations while filing their annual returns.

If your company falls under certain criteria, you must get this form certified by a practising Company Secretary (CS) to confirm that your annual return is accurate and meets all legal requirements.

Understanding who needs to file Form MGT-8, its format, and compliance requirements can help companies avoid unnecessary risks and maintain smooth operations.

Table of Contents

What is Form MGT-8?

Form MGT-8 is a certification issued by a practising Company Secretary to validate that a company’s annual return complies with the provisions of the Companies Act of 2013. It assures that the company has accurately disclosed its financial and operational details, ensuring transparency and accountability.

The certificate covers aspects such as shareholding structure, board composition, meetings, and statutory records.

When Is Form MGT-8 Required?

Form MGT-8 is required in specific scenarios where companies exceed certain financial thresholds or have a specific status. It is mandatory for:

  • Listed companies
  • Companies with a paid-up share capital of ₹10 crores or more
  • Companies with a turnover of ₹50 crores or more

Form MGT-8 Format

Essential Components of the Form

Form MGT-8 is a certification report that includes various essential components to ensure compliance with the Companies Act, 2013. These components typically include:

  • Company Details – Name, registration number, and details of the company.
  • Certificate of Compliance – A statement certifying the company's adherence to the Act’s provisions.
  • Verification of Financial Records – Confirmation that financial statements have been audited and filed according to the law.
  • Board and Shareholder Meeting Details – Confirmation of meetings held and compliance with relevant provisions.
  • Transaction and Borrowing Details – Verification of loans, borrowings, and any changes in share capital.
  • Auditor Details – Information related to the appointment and reappointment of auditors.

Structure and Key Sections

Form MGT-8 follows a structured format, typically divided into the following sections:

  1. Part A: Company Overview
    • Includes company name, CIN (Corporate Identification Number), and registered address.
  2. Part B: Compliance Statements
    • Lists the provisions of the Companies Act, 2013 under which the company is required to comply. It includes details on financial statements, board meetings, and share capital transactions.
  3. Part C: Certification
    • The company secretary provides a certificate stating that the company has adhered to all the relevant provisions of the Act.
  4. Part D: Signature and Date
    • The form ends with the signature of the certifying company secretary, along with the date of certification.

Applicability of Form MGT-8

As per Section 92(2) of the Companies (Management and Administration) Rules, 2014, certain companies must have their annual returns certified by a practising Company Secretary. This applies to:

  • Listed companies
  • Companies with a paid-up share capital of ₹10 crores or more
  • Companies with a turnover of ₹50 crores or more

This certification ensures the company meets all statutory compliance requirements before submitting its annual return.

Related Read: LLP Form 11; Annual Return

Contents of Form MGT-8

Form MGT-8 contains several key elements that ensure a company is in compliance with the Companies Act of 2013. The contents include:

  • Company details: Name, registration number, and principal business activities.
  • Share capital structure: Details of shares issued and ownership distribution.
  • Compliance confirmation: Verification of board meetings, statutory filings, and regulatory approvals.
  • Certifications: Declaration by the practising Company Secretary affirming that the company has adhered to all relevant legal provisions.

Contents of the Form MGT-8 Report

The company secretary must certify that the annual return of the company is accurate and in compliance with the provisions of the Companies Act, 2013. The key points covered in the report include:

  • Status of the Company – The company’s legal status under the Companies Act.
  • Maintenance of Registers and Records – Ensuring records are updated within prescribed timelines.
  • Filing of Forms and Returns – Confirmation that necessary filings were made to the appropriate authorities.
  • Board Meetings – Verification that board and committee meetings were conducted correctly.
  • Register of Members/Shareholders – Confirmation of compliance with closure and maintenance requirements.
  • Loans to Directors – Adherence to provisions under Section 185 of the Companies Act for loans to directors.
  • Changes in Share Capital – Details on share capital transactions (issue, transfer, buyback, etc.).
  • Dividend Rights – Assurance that dividend-related processes have been followed.
  • Investor Education and Protection Fund – Confirmation of amounts moved to this fund as per Section 125.
  • Financial Statements – Certification that audited financial statements are signed and compliant with Section 134.
  • Director & KMP Appointments – Verification of appointments, reappointments, and remuneration of directors and key managerial personnel.
  • Auditor Appointments – Confirmation that auditor appointments comply with Section 139.
  • Approval from Authorities – Ensuring necessary approvals have been obtained.
  • Acceptance of Deposits – Compliance with the acceptance, renewal, and repayment of deposits.
  • Borrowings and Charges – Details on borrowings and matters related to charges.
  • Loans/Investments/Guarantees – Compliance with Section 186 for providing loans/investments to bodies corporate or individuals.
  • Alteration of AoA/MoA – Confirmation of any changes to the Articles or Memorandum of Association.

Looking to register your Sole Proprietorship Company? Head over to Razorpay Rize and complete your company registration!

Compliance Aspects

The compliance aspects covered by Form MGT-8 include:

  • Corporate Governance: Ensuring proper board structure and transparency in decision-making.
  • Regulatory Filings: Confirmation that the company has submitted all required returns and documents.
  • Financial Reporting: Validation of financial statements and records.
  • Board Meetings & Resolutions: Verification of proper conduct of board meetings and resolutions.
  • Loans & Related Party Transactions: Ensuring transactions comply with legal provisions.
  • Approvals & Authorizations: Confirmation that necessary approvals from the Central Government or regulatory authorities are obtained where required.

Consequences of Non-Compliance

Failure to comply with the requirements of Form MGT-8 can result in serious consequences, including:

  • Penalties and Fines: Companies and responsible officers may face monetary penalties for non-compliance.
  • Legal Action: Regulatory authorities may initiate legal proceedings against defaulting companies.
  • Reputation Damage: Non-compliance affects investor confidence and the company's credibility.
  • Operational Restrictions: Companies may face restrictions in obtaining loans, tenders, and other business opportunities.

Conclusion

Form MGT-8 is a critical compliance document that ensures companies adhere to the Companies Act of 2013. It is mandatory for listed companies and those meeting specific financial thresholds.

By obtaining certification from a practising Company Secretary, companies can confirm their adherence to legal requirements, reducing regulatory risks. Understanding its applicability, format, and compliance aspects helps businesses maintain transparency and corporate governance.

Companies must meet the necessary compliance requirements to avoid penalties and safeguard their business interests.

Frequently Asked Questions

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Register your Private Limited Company in just 1,499 + Govt. Fee

Register your business
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Register your One Person Company in just 1,499 + Govt. Fee

Register your business
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Register your Business starting at just 1,499 + Govt. Fee

Register your business
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Register your Limited Liability Partnership in just 1,499 + Govt. Fee

Register your business

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

Who is eligible for MGT-8?

Form MGT-8 can only be certified by a Company Secretary in Practice (CS). A CS is eligible to certify this form if they are a member of the Institute of Company Secretaries of India (ICSI) and hold a valid certificate of practice. This ensures that the certification complies with legal and regulatory standards.

What is MGT-8 filed for?

Form MGT-8 is filed to certify that a company has complied with the provisions of the Companies Act, 2013, and the rules made thereunder. It is specifically used for certifying the annual return of the company, ensuring that the company's records, meetings, filings, transactions, and governance practices are in compliance with the legal requirements.

What is the difference between MGT-8 and secretarial audit?

  • MGT-8: This is a certificate provided by a company secretary in practice, confirming that the company's annual return complies with the requirements of the Companies Act, 2013. It is more focused on the company’s compliance with the law and internal governance.
  • Secretarial Audit: A secretarial audit is a comprehensive examination of a company’s records and operations to ensure compliance with various laws and regulations (including corporate governance and SEBI regulations). It is a more detailed and extensive process compared to MGT-8, usually required for larger companies.

Can MGT-8 be digitally signed?

Yes, MGT-8 can be digitally signed by the company secretary in practice who is certifying the form. The digital signature ensures the authenticity and validity of the document, in line with the requirements for filing documents electronically with the Registrar of Companies (RoC).

Who is required to file MGT-8?

The filing of Form MGT-8 involves the following steps:

How to file MGT-8?

The filing of Form MGT-8 involves the following steps:

  1. Preparation: The company secretary in practice certifies the company’s compliance with the Companies Act, 2013 and prepares Form MGT-8.
  2. Certification: The company secretary certifies the annual return, ensuring it is in line with the legal requirements.
  3. Submission: Form MGT-8, along with the annual return (MGT-7), is filed with the Registrar of Companies (RoC) through the Ministry of Corporate Affairs (MCA) portal. The company secretary digitally signs the form before submission.
  4. Filing Fee: Pay the prescribed filing fee on the MCA portal at the time of submission.

Akash Goel

Akash Goel is an experienced Company Secretary specializing in startup compliance and advisory across India. He has worked with numerous early and growth-stage startups, supporting them through critical funding rounds involving top VCs like Matrix Partners, India Quotient, Shunwei, KStart, VH Capital, SAIF Partners, and Pravega Ventures.

His expertise spans Secretarial compliance, IPR, FEMA, valuation, and due diligence, helping founders understand how startups operate and the complexities of legal regulations.

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Addition and Removal of Partners in Partnership Firm

Addition and Removal of Partners in Partnership Firm

Adding or removing partners is a common occurrence in partnerships and Limited Liability Partnerships (LLPs). The process involves several legal and procedural steps that must be carefully followed. Changes in partnership composition impact the firm's registration, capital contribution, profit sharing, and management.

This article provides a comprehensive guide on how to add or remove a partner from a partnership, including the eligibility criteria, procedures, documentation, and key considerations. Whether you're looking to bring in a new partner or remove a business partner, understanding the legal framework is crucial.

Table of Contents

What is meant by Addition of Partner?

The addition of a partner involves introducing a new member into an existing partnership firm. This decision requires the unanimous consent of all current partners unless the partnership agreement stipulates otherwise. The incoming partner must possess the legal capacity to enter into a contract, as outlined in the Indian Contract Act, 1872. New partners bring specialised skills and industry expertise, enhancing operational efficiency. Their networks open doors to new business opportunities and markets. Overall, this flexibility enables firms to bring in fresh capital, skills, and expertise to support growth and expansion.

Process Of Addition Of Partners

The process of introducing a new partner involves several key steps:

  1. Agreement on terms and conditions: The existing and incoming partners must mutually agree on aspects such as profit sharing ratio, capital contribution, roles and responsibilities.
  2. Execution of deed of admission: A supplementary agreement containing the terms of admission should be drafted and signed by all partners, including the new entrant.
  3. Capital contribution: The incoming partner must bring in the agreed capital.
  4. Intimation to Registrar: Form 3 along with the prescribed fee should be filed with the Registrar within 30 days of the change.
  5. Notification to stakeholders: The firm must inform its bank, tax authorities, and vendors/suppliers about the new partner's admission.

Documents Requirement For Addition of Partners

The following documents are typically required for the addition of a partner:

  • A Digital Signature Certificate (DSC) is necessary for e-filing with the Registrar of Companies (ROC).
  • Form 3 must be filed to update the LLP agreement, reflecting the new partner’s inclusion.
  • Form 4 is used to notify the ROC about the appointment and obtain the partner’s consent.
  • A Limited Liability Partnership Identification Number (LLPIN) is essential for all filings.
    These documents ensure the smooth onboarding of a new partner while maintaining regulatory compliance under the LLP Act, 2008. of Admission/Supplementary Partnership Deed

Advantages Of Adding Partners in Partnership Firms

The introduction of a new partner offers several benefits to a partnership firm:

  • Capital infusion to support business growth and expansion
  • Fresh expertise and skills to enhance the firm's capabilities
  • Shared responsibilities and decision-making
  • Potential for increased profitability and market share

What is meant by Removal of Partner?

Partner removal in a partnership firm or LLP occurs when an existing partner exits, either voluntarily or by a decision of other partners, as per the partnership agreement. The process must comply with the Indian Partnership Act, 1932, which allows removal only if expressly stated in the agreement and with the consent of all partners (except the one being removed). In LLPs, removal must also adhere to the Limited Liability Partnership Act, 2008 and LLP agreement terms.

Why Removal of a Partner May Become Necessary?

The removal of a partner may become necessary due to several reasons:

  • Voluntary retirement or withdrawal
  • Breach of partnership agreement or trust
  • Incapacity or inability to perform duties
  • Misconduct or negligence detrimental to the firm
  • Insolvency or bankruptcy
  • Death of the partner

Steps Involved In Removing a Partner

The process of removing a partner typically involves:

  1. Serving notice: A notice of the proposed removal, specifying the grounds, should be served on the concerned partner.
  2. Considering reply: The concerned partner must be allowed to submit a response to the notice.
  3. Majority approval: Obtain at least 75% approval from the remaining partners through a resolution.
  4. Executing deed of retirement/reconstitution: The change in partnership should be documented through a formal deed.
  5. Intimating Registrar: Form 4 with the applicable fee should be filed with the Registrar within 30 days.
  6. Settlement of accounts: The outgoing partner's accounts should be settled as per the partnership deed or mutual agreement.

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Section 31: Introduction of a New Partner

Section 31 of the Indian Partnership Act, 1932, governs the introduction of a new partner into an existing firm. It stipulates that a new partner can only be admitted with the consent of all existing partners unless the partnership agreement provides otherwise.

Rights and Liabilities of a New Partner

Upon admission, the new partner becomes entitled to share in the profits and is liable for the losses and debts of the firm from the date of their entry, unless agreed otherwise. They have the right to access the firm's books of accounts and to participate in the management of the business. However, they are not liable for any acts of the firm before their admission, unless they expressly assume such liability.

Section 32: Retirement of a Partner

Rights of Outgoing Partner

Section 36: Right to Conduct a Competing Business

Unless restricted by an agreement, a retiring partner has the right to carry on a business competing with that of the firm and to advertise such business. However, they cannot use the firm's name or represent themselves as carrying on the firm's business.

Right To Share

The retiring partner is entitled to receive their share of the firm's assets, including goodwill, as per the terms of the partnership agreement or mutual understanding. They also have the right to share in the profits of the firm until the date of their retirement.

Section 37: Entitled to Claim

The outgoing partner has the right to claim their due share from the continuing partners. If not paid outright, they are entitled to interest at 6% per annum on the amount due.

Liabilities of Outgoing Partner

Section 32(3) and (4): Liability to the third party

The retiring partner remains liable to third parties for all acts of the firm until public notice of their retirement is given. They are also liable for any obligations incurred by the firm before their retirement unless discharged by agreement.

Section 32(2): Agreement of Liability

The retiring partner and the continuing partners may agree to discharge the retiring partner from all liabilities of the firm, but such an agreement is not binding on third parties unless they are aware of it.

Section 33: Expulsion of a Partner

A partner may be expelled from the firm by a majority of partners if such power is conferred by an express agreement between the partners. The power to expel must be exercised in good faith. Unless agreed otherwise, the expelled partner can claim the value of their share as if the firm were dissolved on the date of expulsion.

Section 34: Insolvency of a Partner

If a partner is adjudicated as insolvent, they cease to be a partner from the date of the insolvency order. Their share in the firm vests with the Official Assignee or Receiver appointed by the court. The firm is dissolved unless the solvent partners buy the insolvent partner's share and continue the business with proper intimation.

Section 35: Death of a Partner

In the event of a partner's demise, their legal heirs or executors step into their shoes. The firm dissolves from the date of death unless the partnership deed provides for continuity. The deceased partner's share in the firm's assets, goodwill, and profits is settled as per the partnership agreement or mutual understanding.

Section 38: Continuing Guarantee Revocation

The estate of a deceased or insolvent partner, an expelled or retired partner, is not liable for the firm's debts contracted after their death, insolvency, expulsion or retirement. A continuing guarantee given to a firm or a third party in respect of the firm's transactions is revoked as to future transactions by any change in the firm's constitution.

Conclusion

Changes in the composition of a partnership firm through the addition or removal of partners are significant events. While new partners can infuse capital and expertise, the exit of partners due to retirement, expulsion, insolvency or death can impact the firm's continuity and harmony. The Partnership Act provides a framework for inducting and removing partners. The terms of entry and exit should be clearly documented in the partnership agreement to minimise disputes. Intimations to the Registrar and third parties should be made promptly. With some foresight and planning, partnership firms can manage changes in their constitution smoothly and continue their business journey.

Frequently Asked Questions

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Private Limited Company
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1,499 + Govt. Fee
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  • Service-based businesses
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Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
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  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

How do I add and remove a partner in LLP?

A new partner can be added to an LLP with the consent of all existing partners. Form 4 along with the supplementary LLP agreement admitting the new partner should be filed with the Registrar within 30 days. For removing a partner, Form 4 along with the supplementary agreement removing the partner should be filed.

Can we add a new partner in LLP?

Yes, a new partner can be admitted to an LLP with the consent of all existing partners, unless the LLP agreement provides otherwise. The admission should be documented through a supplementary agreement and Form 4 should be filed with the Registrar.

How do you remove and add a new partner in a partnership firm?

The best name for your company is one that aligns with your brand identity, business operations, and legal requirements. It should be simple, professional, and free from misleading or offensive words.

Can you remove a partner from a company?

Yes, a partner can be removed from a partnership firm through retirement, expulsion, insolvency, death or dissolution of the firm, as per the provisions of the Partnership Act, 1932.

How do I remove a partner from a limited company?

A partner is associated with a partnership firm, not a limited company. To remove a director from a limited company, the procedures under the Companies Act, 2013 should be followed, which may involve passing a resolution in a general meeting.

How do I add a partner in a private limited company?

A private limited company has directors and shareholders, not partners. To appoint a director in a private limited company, the procedures laid down in the Companies Act, 2013 should be followed, which typically involve passing a board resolution and filing necessary forms with the Registrar of Companies.

How do I remove a partner from a general partnership?

A partner can be removed from a general partnership through retirement (with the consent of all other partners or as per the partnership agreement), expulsion (if such power is conferred by express agreement), insolvency, death or dissolution of the firm. The removal should be documented through a deed of retirement or reconstitution and intimated to the Registrar and third parties.

How do I add a partner to an existing partnership?

A new partner can be admitted to an existing partnership with the consent of all current partners unless the partnership agreement provides otherwise. The terms of admission should be agreed upon and documented through a supplementary agreement. The incoming partner must bring in the agreed capital contribution. Form 3 should be filed with the Registrar within 30 days of the change.

How do I add a partner in a private limited company?

A private limited company does not have partners. It has directors and shareholders. To appoint a director in a private limited company, the procedure laid down in the Companies Act, 2013 should be followed. This typically involves passing a board resolution and filing necessary forms with the Registrar of Companies.

Mukesh Goyal

Mukesh Goyal is a startup enthusiast and problem-solver, currently leading the Rize Company Registration Charter at Razorpay, where he’s helping simplify the way early-stage founders start and scale their businesses. With a deep understanding of the regulatory and operational hurdles that startups face, Mukesh is at the forefront of building founder-first experiences within India’s growing startup ecosystem.

An alumnus of FMS Delhi, Mukesh cracked CAT 2016 with a perfect 100 percentile- a milestone that opened new doors and laid the foundation for a career rooted in impact, scale, and community.

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 Difference Between Sole Proprietorship and One Person Company

Difference Between Sole Proprietorship and One Person Company

When deciding between a One Person Company (OPC) and a Sole Proprietorship (SP), understanding their core differences is crucial. An OPC is a legal entity with limited liability, separate from its owner, which can be beneficial for protecting personal assets. In contrast, a Sole Proprietorship is not a separate legal entity; here, the owner bears full responsibility for business liabilities, making it simpler but riskier.

Factors such as liability, compliance requirements and tax benefits may impact your choice between OPC and SP. While OPC offers better legal protection, SP provides simplicity and minimal regulatory obligations.

This guide will evaluate opc vs sole proprietorship in detail. 

Table of Contents

What is One Person Company (OPC)?

A One Person Company (OPC) is a company structure in India that allows a single individual to establish a business with limited liability. It provides the benefits of a corporate entity while retaining the simplicity of sole ownership.

Unlike a sole proprietorship, an OPC is a separate legal entity. This means it can own assets, enter into contracts, and protect the owner's personal assets from business liabilities.

OPCs operate under regulatory requirements similar to private limited companies but are tailored for single ownership. Additionally, the member must appoint a nominee to take over the business in case of the owner's incapacity or death.

What is Sole Proprietorship?

A sole proprietorship is a simple business structure, where the business is owned and managed by one individual. This makes it ideal for small businesses or individual entrepreneurs. The meaning of a sole proprietor is essentially someone who is the sole beneficiary of all business profits and is personally liable for any debts incurred by the business. There is no particular Sole Proprietorship Act in India. 

Unlike a One Person Company, a sole proprietorship does not separate the business entity from the owner. This means that all legal, financial and operational responsibilities rest with the proprietor, who has full control over decision-making and retains all profits.

Operating as a sole proprietor allows for flexibility and ease in starting or closing a business. There are minimal regulatory formalities, although certain licences may be required for specific sectors, like medical or food services. 

One Person Company vs Sole Proprietorship

Here is a detailed analysis of the difference between sole proprietorship and one person company:

Criteria Sole Proprietorship One Person Company (OPC)
Definition An unincorporated business owned and operated by a single individual, making it the simplest business form. A business structure introduced under the Companies Act 2013, allowing a single person to own a company with limited liability.
Liability The owner has unlimited personal liability, meaning their personal assets are at risk for business debts. Offers limited liability protection to the owner, so personal assets are generally safeguarded from business liabilities.
Formation and Compliance Minimal formalities required for setup, as it is not registered under any specific act. Requires registration with the Registrar of Companies (RoC) and submission of documents like MoA and AoA.
Continuity Business depends entirely on the owner’s existence; it ends if the owner dies or is incapacitated. Separate legal entity status allows the OPC to continue even if the owner passes away, with a nominee assuming control.
Fundraising Limited to personal savings, bank loans or funds from informal sources, which can hinder growth. Better positioned for fundraising through equity shares, allowing more potential for expansion.
Taxation Income is taxed as per individual income tax slabs, making tax management straightforward. Taxed as a company with applicable corporate tax rates, requiring additional annual filings with RoC.
Business Name Generally uses the owner’s name or a trade name, with no specific suffix required. Must include “OPC” in the company name, as mandated by law.

Sole Proprietorship Advantages and Disadvantages

Advantages of Sole Proprietorship

Quick Decision-Making

With full control, the sole proprietor can make prompt decisions, aiding responsiveness and agility in business operations.

Confidentiality

All business information remains private to the owner, enhancing operational discretion.

Ease of Formation and Low Costs

Starting a sole proprietorship involves fewer legal requirements, keeping setup costs low.

Direct Incentives

The owner retains all profits, providing direct motivation for business success.

Disadvantages of Sole Proprietorship

Unlimited Liability

The proprietor’s personal assets can be used to cover business debts, increasing financial risk.

Limited Access to Capital

Raising funds can be challenging, as sole proprietors often rely on personal savings or small loans.

Lack of Business Continuity

The business may end with the owner's incapacity, death or insolvency, impacting long-term stability.

Limited Specialisation

Managing all aspects of the business alone can hinder growth and focus on key areas.

One Person Company (OPC) Advantages and Disadvantages

Advantages of One Person Company

Limited Liability

The owner's liability is limited to the capital invested, safeguarding personal assets from business debts.

Separate Legal Entity

Being legally distinct enhances the company's credibility and professionalism.

Tax Benefits

OPCs enjoy certain tax benefits, such as lower rates and deductions on business expenses.

Single Ownership with Control

The owner retains full control over operations, simplifying decision-making.

Disadvantages of One Person Company

Limited Funding Options

OPCs cannot raise funds from the public, which may restrict growth opportunities.

Compliance Requirements

Annual filings, account maintenance and meetings are required, adding to operational tasks.

Nominee Requirement

The need for a nominee can be limiting for owners wanting complete control.

Naming Restrictions

"One Person Company" must be part of the company’s name, reducing flexibility in branding.

Frequently Asked Questions:

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Private Limited Company
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1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

Which is better, OPC or sole proprietorship?

When evaluating one person company vs sole proprietorship, the decision depends on your business goals. An OPC offers limited liability, protecting personal assets and provides credibility as a separate legal entity, which may attract investors. In contrast, a sole proprietorship is simpler to set up with fewer compliance requirements, but the owner is personally liable for business debts. 

Can a sole proprietorship be converted to OPC?

Yes, a sole proprietorship can be converted to an OPC. The process involves registering a new OPC and transferring the business’s assets and liabilities, following the regulations laid out by the Ministry of Corporate Affairs (MCA).

What are the tax benefits of OPC?

An OPC enjoys various tax benefits compared to a sole proprietorship. For example, OPCs can claim deductions on business expenses, such as salaries, office rent and travel costs. Additionally, OPCs benefit from lower corporate tax rates compared to individual tax rates applicable to sole proprietorships. 

How is OPC taxed?

An OPC is taxed as a private limited company, subject to corporate tax rates rather than individual tax rates. The current corporate tax rate in India for domestic companies is typically lower than the personal income tax rate applicable to sole proprietorships. 

Why is OPC a private company?

An OPC is classified as a private company because it operates with a single owner and has similar structural features to a private limited company, such as limited liability, a separate legal entity and compliance requirements. 

Can a sole proprietorship have employees?

Yes, a sole proprietorship can hire employees. The business owner, however, remains personally liable for any obligations or liabilities arising from employment, as the structure lacks limited liability protection.

Is a one person company the same as sole proprietorship?

No, a one person company is not the same as a sole proprietorship. While a one person company has a separate legal entity, a sole proprietorship does not have it. Moreover, the liability of the owner is limited in a one person company, as opposed to a sole proprietorship, where the owner’s liability is unlimited. 

Mukesh Goyal

Mukesh Goyal is a startup enthusiast and problem-solver, currently leading the Rize Company Registration Charter at Razorpay, where he’s helping simplify the way early-stage founders start and scale their businesses. With a deep understanding of the regulatory and operational hurdles that startups face, Mukesh is at the forefront of building founder-first experiences within India’s growing startup ecosystem.

An alumnus of FMS Delhi, Mukesh cracked CAT 2016 with a perfect 100 percentile- a milestone that opened new doors and laid the foundation for a career rooted in impact, scale, and community.

Read more

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