A single person has choice of two types of business registrations that are 1) Sole Proprietorship and 2) One Person Company. Both of the business structures are substantially different from each other thus a person must understand key facts related to both types of business structure while choosing the business structure. For example, if the person wants to enjoy the limited liability of OPC then he must incorporate the OPC while the person wants to start the business with low investment and less compliances then he must always choose the Sole Proprietorship.
Table of Contents
What is Sole Proprietorship?
Sole Proprietorship is a business structure which is operated by single person and the proprietor shall be personally liable for its debts as it is not a separate legal entity.
What is One Person Company (OPC)?
One Person Company is a private limited company having one member and is managed through its director/directors. The member can also become the director of the company. The concept of OPC was rolled out in the Companies Act, 2013 and since then it has become the most preferable business structure for single person willing to start a business.
Sole Proprietorship v/s One Person Company
BASIS |
Sole Proprietorship |
One Person Company |
Registration |
Not mandatory. It can get registration under – 1. Shop & Establishment Act |
Mandatory to get registration with the MCA under the Companies Act, 2013 |
Name |
Generally it is on the name of the proprietor |
Mandatory to use the word “OPC” in its name |
Separate Legal Entity |
No |
Yes |
Liability of owner/member |
Unlimited Liability |
Limited Liability |
Succession |
No, as the Business ends upon the death of the proprietor |
Yes, the company is run by the nominee appointed at the time of incorporation |
Income Tax Liability |
Income of Sole proprietorship is treated as proprietor’s income. Thus, it is taxed as an individual’s income |
OPC is taxed as a private limited company. |
Compliances |
It is only required to get accounts audited as per the section 44AB of the Income Tax Act, 1961 when the turnover of the business exceeds the prescribed limit. |
There are various company compliances prescribed by the Companies Act, 2013 such as to file Annual Returns, statutory audit and so on and the OPC is mandatorily required to comply these compliances. |
Management |
It is wholly & solely managed by the Proprietor only |
It is managed through its Directors (Minimum 1 – maximum 15) |
Goodwill |
Comparatively low |
Comparatively high |
Conclusion
Choosing the most suitable business structure is the most important step for starting a business. This is why it is always suggested to seek assistance from experts for choosing the suitable business structure.
If you require any such assistance then contact your Trustworthy Advisors Manthan Experts for registering your business.
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Knowledge Source:
What is the difference between a Private Limited Company and a Section 8 Company ?