It’s already difficult for each founder/entrepreneur to battle the demands of finding product-market fit, integrating payment gateways, and then eventually stumbling upon the age-old tradition of establishing a business entity. Yeah, because mostly everything is regulated.

In India, it helps to set up a business entity to accept payments from international customers through well-known payment gateways like Stripe, Paddle, and LemonSqueezy.

In India, to start your SaaS startup, there are primarily 4 well-known options.

1. Sole Proprietorship
2. Partnership
3. Limited Liability Company
4. Private Limited Company

Now what the heck do they even mean?

I didn’t know much when I was starting out. However, this guide is here to share my understanding of these.

This table from IndiaFilings helped me clear a lot of my own doubts

Proprietorship vs Limited Liability Partnership (LLP) vs Company

Features	Proprietorship	Partnership	LLP	Company
Definition	Unregistered type of business entity managed by one single person	A formal agreement between two or more parties to manage and operate a business	A Limited Liability Partnership is a hybrid combination having features similar to a partnership firm and liabilities similar to a company.	Registered type of entity with limited liability to the owners and shareholders
Ownership	Sole Ownership	Min 2 PartnersMax 50 Partners	Designated Partners	Min 2 DirectorsMin 2 ShareholdersMax 15 DirectorsMax 200 Shareholders**For One Person Company**1 Director1 Nominee Director
Registration Time	7-9 working days
Promoter Liability	Unlimited Liability	Limited Liability
Documentation	MSMEGST Registration	Partnership Deed	LLP DeedIncorporation Certificate	MOAAOAIncorporation Certificate
Governance	-	Under Partnership Act	LLP Act, 2008	Under Companies Act,2013
Transferability	Non Transferable	Transferable if registered under ROF	Transferable
Compliance Requirements	Income tax filing if turnover is more than Rs.2.5 lakhs	ITR 5	Form 11Form 8ITR 5	ITR 6MCA filingAuditor’sappointmentKnow More

Here’s my take anyways

Sole Proprietorship

This one is when:

• You want to start out solo or with an understanding co-founder
• Want to get a payment gateway set up in minimal time to get started with a GSTIN number
• Are aware of the implications that the SaaS product you sell will not cause you any legal trouble down the lane
• Want minimal legal paperwork
• You want to file ITR if you have a turnover of more than 2.5 L INR
• Don’t want VC funding from angel investors
• Want to take your product bootstrapped to the market

If all the points check out, maybe you want to check more about it here in IndiaFilings.

Partnership

• When you have a partner friend willing to be a 50% stakeholder in your business entity
• Are ready to bear the documentation and paperwork to start a partnership
• Ready to bear any liability or legal issues being tied to your partner’s and your name
• Still not much interested in VC funding

LLP (Limited Liability Partnership)

• Pros
  • At least 2 partners are there
  • Want your partnership to be a separate entity (limited liability)
  • Less paperwork than a company and fewer compliances to follow
• Cons
  • VCs are still not much interested in funding you
  • Don’t get the much broader scope of options as provided in a private limited company

Private Limited Company

• Pros
  • Has scope for investors (foreign direct investments)
  • VCs are favorable towards funding a PLC
  • Want to have employees, grant ESOPs (employee stock options)
  • Want to have shares of the company
  • Can transfer the company
  • Many more benefits
• Cons
  • More compliances than an LLP
  • 4 annual meetings required
  • Need to invest some upfront capital (10k to 1L+)
  • Need to have audits
  • Need to appoint a registered CA
  • Need to file more than just an ITR, submit audit reports

Takeaway

For me the takeaway was having this approach.

Don’t try to solve the problems you don’t have. Keep awareness of limitations that your decision provide, but don’t let it hinder or overburden you.

So for us, the right option came out to be starting with an LLP and applying for a payment gateway on Paddle HQ. We will be applying for the venture entity through IndiaFilings.

Indiehackers

When I was searching for the solution to my problem, I came upon ”Accepting payment as an individual in SaaS app” on IndieHackers and found a solution from this guy called Sachingk to be really nice and straightforward.

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Sachingk said,

”No payment gateway company allows you to make international transactions without a company in place.

No foreign customer will pay you on your personal account. They don’t feel safe.

Here is a no-cost solution:

• Udyog Aadhaar to register your business in the next 10 minutes without any cost.

• All you need is your Aadhaar card number.

• Then take that registration number to any nationalized bank. They will allow you to open a bank account.

• Then use the bank account details to register for RazorPay or Stripe.

What if my company doesn’t work? Just close the bank account. That’s it.

Moreover, you are trying to be an entrepreneur. If this idea doesn’t work, then you will find one more to work with.”

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That was really amazing to read. Will be trying that out in a week.

Will post an update on how it goes!

All the best entrepreneuring!

Last updated: 14th Oct, 2023