Should you opt for a One Person Company or a Sole-Proprietorship?

Every entrepreneur goes through the issue of choosing the right business structure for his or her business at one time. There are approximately 12 kinds of business entities in India; out of these, the most popular ones are LLP, Private Limited Company, Sole-Proprietorship and a One Person Company. Where a Private Limited Company and LLP is the preferred choice in the case of a big organisation; there is a tendency to opt for a Sole-Proprietorship or One Person Company structure if they want to open a smaller business and want to be in complete control of it. Nevertheless, there is a wide difference between One Person Company and Sole Proprietorship.

Let us have a look at the difference between One Person Company and Sole Proprietorship

One Person Company Sole-Proprietorship
It is recognized as a separate legal entity It is not a separate legal entity
Regulated by the Companies Act, 2013 Not regulated by any act
Minimum requirement of 1 Shareholder No requirement for Shareholders
It has mandatory audit compliances No audit necessary
Liability is limited to the number of shares owned The owners are personally liable for all the debts incurred
It is mandatory to register an OPC with the Registrar of Office and obtain a Certificate of Incorporation Does not require registration
Minimum capital contribution is 1,00,000 Does not require a minimum paid-up or authorised capital
Can be converted into a Public Limited Company and a Private limited Company Cannot convert to another business structure
Minimum requirement of 1 Director who has to be a resident of India No requirements for a Director
Can be treated like a Private Limited Company when it comes to taxation Personal income of the owner is applicable to income tax

What should you opt for?

If you want to start a business instantly without paperwork hassles and minimal compliances then Sole-Proprietorship is the easiest option. However, it is also very risky in terms of liability, which is extended to personal assets of the owners. A One Person Company, on the other hand, possesses limited liability and has easy transferability of shares. However, as compared to a Sole Proprietorship, it is charged at a higher tax rate. Nevertheless, when seeking a long-term venture, a One Person Company is a more viable option. On the other hand, if it is a small business then Sole-Proprietorship seems like an ideal choice. This said, it is advisable to consult legal professionals to understand legal compliances when it comes to choosing the right entity for your business in India.

Startup Choice helps entrepreneurs’ kick-start their business in India with quick company formation services. In order to start a Sole-Proprietorship Firm or a One Person Company, visit Startup Choice. For more queries drop us a mail at hello@startupchoice.com or give us a buzz at +91-9318242424.

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