One Person Company Vs Sole Proprietorship: Which Is Right For You?

Looking to start a Business, all by yourself? You have two options: opening a sole proprietorship or a one-person company. Read this article to make the right decision. Until a few years ago, a sole proprietorship was the only option for a person who wants to start a business by themselves. Now you have an alternative option: a one-person company. The concept of the one person company (OPC) allows a single person to run a company limited by shares. A sole proprietorship is an entity that is run and owned by one individual where there is no distinction between the owner and the business.

In this article we are going to discuss about difference between OPC and Sole Proprietorship. If you are still not sure which one to pick for your business, feel free to reach out to us and our experts will guide you in making the right decision.

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Advantages of Sole Proprietorships

  1. Easy to set up. No long registration process.
  2. Takes lesser investment
  3. Compliances are less compared to OPC (least among all other forms of business)
  4. Tax is lesser as long as the income is lesser than the income tax slab for individuals
  5. Financial statements and audit reports are not public, while as an OPC you have to submit these details as an OPC
  6. No mandatory audit is required for a sole proprietorship if the type of business doesn’t warrant it.

Disadvantages of Proprietorships

  1. While the sole owner enjoys all the profits, they also have to bear all the loses
  2. Comparatively hard to get funding or loan as banks and any other lenders are hesitant to invest in this type of business
  3. As the income grows, one might have to pay higher taxes according to the tax slab while OPC is taxed differently

So, a sole proprietorship is best for small businesses that aren’t looking to incur debt or get funding. If you are not planning to scale your business up a lot, this could still be a good choice for you to start a business. You can later register your business as an OPC.

Advantages of OPC

  1. Limited liability for the business owner
  2. It is a separate legal entity
  3. The company registration gives more credibility to the business
  4. Easy to get loans or funding for the business as lenders trust the registered business
  5. Perpetual succession: In case the owner becomes incapable to run the business or dies, the nominee can take over the business
  6. A sustainable business structure even when you want to scale

Disadvantages of OPC

  1. OPC takes more money to set up and run compared to Sole Proprietorship
  2. More compliances
  3. Must have a nominee to incorporate an OPC
  4. A person cannot have more than 1 OPC at a time

The OPC is best for people who want to start a business with a corporate structure but still want to retain effective control over all the business operations. You can scale the company and still enjoy limited liability.

If you are still not sure which one to pick for your business, feel free to reach out to us and our experts will guide you in making the right decision. 

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Comparison among different type of Business Registration Options in India

Features Private Limited Company OPC LLP Partnership Sole Proprietorship

Applicable Law

Companies Act, 2013

Companies Act, 2013

LLP Act, 2008

Partnership Act 1932

No Law Applicable

Number of members

2 - 200

1

2 - Unlimited

2 - 20

1

Number of Directors /DP

2 - 15

1-15

2 - Unlimited

1-20

1

Formation

Through ROC

Through ROC

Through ROC

Agreement

Easy

Tax Benefits

The income tax rate for companies engaged in manufacturing activities is only 15%, while for all other newly set up companies it is 22%

The income tax rate for companies engaged in manufacturing activities is only 15%, while for all other newly set up companies it is 22%

LLP Income Tax Rate is 30% on its profits

Partnership firms are taxed at 30% on its profits

For a small business with low turnover, there is the benefit of individual tax slabs.

Statutory Compliance

High

High

Low

Low

Minimum

Foreign Investment (FDI)

Foreign Direct Investment in case of a Private Limited Company is available under the automatic route.

FDI is not allowed in One Person Company

FDI in LLP Is permitted at par with the companies

FDI not Allowed 

FDI not Allowed 

Separate Legal Entity

A Company is a separate legal entity separate from its promoters

An OPC is a separate legal entity separate from its promoters

An LLP is a separate legal entity separate from its promoters

A Partnership is a legal entity but not different from partners

The proprietor and the proprietorship business is the same thing

Limited Liability

Liability Limited - Shareholders of a Company are bound to pay only up to the capital they have subscribed to the company.

Liability Limited - In OPC, unlike a proprietorship, the shareholder cannot be asked to pay beyond his subscribed capital

Liability Limited - The partners of an LLP can be called upon to pay only up to the amount of capital they subscribed to.

Liability Not Limited - There is no protection of limited liability, even the personal properties of partners are at risk for losses of business

Liability Not Limited - The proprietor is the whole sole of the business, and his liability to the debts or losses of proprietorship is unlimited.

Ownership Transferability

The shareholding of a Pvt Ltd Company is easily transferable

OPC Shares can be transferred to new shareholder along with the nominee

In LLP contribution/share of a partner can be transferred with the consent of all other partners.

Not Possible, every admission or removal of a partner amounts to the new firm.

Not Applicable

Perpetual Existence

A Company exists beyond the life of its owners /shareholders. After the death, the shares transmits to legal heirs

OPC Continues to exist even after the death of its only shareholder, as it passes to the nominee.

The LLP also have perpetual existence and exists beyond the life of the designated partner

No perpetual existence, with the death of a partner, the partnership ends.

No perpetual existence, with the death of the proprietor, it ends.