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.
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One Person Company Vs Sole Proprietorship
Sole Proprietorship Registration
Advantages of Sole Proprietorships
- Easy to set up. No long registration process.
- Takes lesser investment
- Compliances are less compared to OPC (least among all other forms of business)
- Tax is lesser as long as the income is lesser than the income tax slab for individuals
- Financial statements and audit reports are not public, while as an OPC you have to submit these details as an OPC
- No mandatory audit is required for a sole proprietorship if the type of business doesn’t warrant it.
Disadvantages of Proprietorships
- While the sole owner enjoys all the profits, they also have to bear all the loses
- Comparatively hard to get funding or loan as banks and any other lenders are hesitant to invest in this type of business
- 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.
One Person Company Registration
Advantages of OPC
- Limited liability for the business owner
- It is a separate legal entity
- The company registration gives more credibility to the business
- Easy to get loans or funding for the business as lenders trust the registered business
- Perpetual succession: In case the owner becomes incapable to run the business or dies, the nominee can take over the business
- A sustainable business structure even when you want to scale
Disadvantages of OPC
- OPC takes more money to set up and run compared to Sole Proprietorship
- More compliances
- Must have a nominee to incorporate an OPC
- 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.
