Business planning

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

Every individual wants to start his/her own business today. If you have a knack for something, there are greater chances of success in starting a business than a job. Many individuals choose the option of a startup these days. But the major question is whether they can start a one-person company sole-proprietorship.

Both these options have their own benefits. Even the procedure of one-person company registration is quite simple these days. But still, many businessmen cannot decide between these two options when it comes to company formation.

In this blog, we will discuss the concepts of a one-Person Company and a sole proprietorship, the differences between them, and the better option to pick from both.

Meaning of One Person Company

As the name says, One Person Company is a company owned by only one person. One individual runs the whole company. Both the owner and business are the same in the case of One Person Company.

What is Sole Proprietorship?

A Sole Proprietorship is a company managed by only one person. It is similar to One Person Company in many ways. There is no difference between the business and owner in the case of Sole Proprietorship.

Major Differences between One Person Company and Sole Proprietorship

Both OPC and Sole Proprietorship look similar but they have many differences. They are different from each other in many ways such as:

  1. Registration procedure

It is not compulsory to register a Sole Proprietorship. You can run it even without a registration procedure. One Person Company can be registered under the Companies Act 2013 and MCA.

  1. Liability of the owner

There is a big difference when it comes to the liability of the owner. In One Person Company, the liability of the owner is limited only to the limit of the amount that he invested in the company. On the other hand, Sole Proprietorship considers the owner and business as a single entity. It means the owner has to bear the losses if the business faces losses. The owner’s liability is not limited in the case of Sole Proprietorship.

  1. Maximum members

In the case of Sole Proprietorship, there can be a maximum of 1 person to run the company. On the other hand, one person company has a maximum of 2 persons. Partners or 2 family members who want to start a new business can choose one person company to start their business operations.

  1. Business succession

In One- a Person Company, the business can be still run by a designated nominee after the death of the business owner. The nominee must be an Indian citizen and a resident of India as well. This is not the case in Sole Proprietorship.

In Sole Proprietorship, the owner and business are treated as a single entity. So, in the case of the death of the business owner, the business ends as well. Last testament or will can only take the business activities ahead in Sole Proprietorship.

  1. Taxation

The process of OPC registration in India makes it a private company. One- Person Company will be taxed under Income Tax Act for private companies. Income earned by the business owner in Sole Proprietorship goes under individual income.

  1. Foreign Ownership

Foreign ownership is not allowed in Sole Proprietorship. On the other hand, foreign ownership in One Person Company is allowed if the nominees are Indian citizens.

  1. Requirements for board meetings

One Person Company is a legal entity. So, it is necessary to conduct the annual general meeting and board meetings every year. Contrary to that, a sole proprietorship is not a legal entity. There are no requirements for holding an annual general meeting or a board meeting in a sole proprietorship.

Which is a better option- Sole Proprietorship or One-Person Company?

The process of Company registration as OPC or Sole Proprietorship is simple nowadays. However, the new businessmen cannot pick the better option from both the companies.

It is better to form a One-Person Company for individuals who enjoy a limited liability of the owner. OPCs also have a corporate-like structure and give many other benefits to the business owners.

But some individuals also do company incorporation as a Sole Proprietorship. There are a few benefits of Sole Proprietorship as well. There is less paperwork in Sole Proprietorship Registration. Apart from that, it is also cost-effective to start a company as a Sole Proprietorship. New businesses and startups have less budget and they can go for the formation of Sole Proprietorship.

Both Sole Proprietorship and OPC have their own benefits and disadvantages. It depends on different businesses which option they pick to run their business operations.

One -Person Company has more benefits than Sole Proprietorship and it is a better option for startups.

If you have any questions, please ask below!