One Person Company and Sole Proprietorship Firms are both examples of single person led businesses. It means if you are one of the budding entrepreneurs, planning to register your business, you get to choose between these two available types. One needs to understand that an organization once registered in a type, cannot be changed very easily. It is the reason why considering all the perks and cons of each type and understanding the difference between them before registration becomes a crucial step.
Sole Proprietorship Firm is one of the most popular forms of businesses in India. The credit for the popularity of the business form can be given to the ease of understanding and affordable or rather the cheapest registration charges. Sole proprietorship firm registration only registers the owner of the company and does not treat the business as a separate legal entity. However, it does allow the person to run their business under a different name.
One Person Company on the other hand is comparatively new in India and hence not as popular as Sole Proprietorship. Although not many people are aware of the business form, it has got quite some perks for the owners. Recently introduced by the Companies Act 2013, one person company registration unlike online partnership firm registration creates a separate legal entity. Because of that, the owner gets protected by the limited liability feature.
One Person Company Vs Sole Proprietorship Firm In India- Compare
|Feature||One Person Company Registration||Sole Proprietorship Firm Registration|
|Liability||Limited top investment||Personal assets are at risk due to the absence of limited liability protection.|
|Directors||Min. 1 and Maximum can be 15||No concept of Directors, the owner is everything.|
|In Case Of Death||The Business gets succeeded to the nominee.||The Business gets dissolved.|
|Registration||An online process governed by the Ministry of Corporate Affairs and is issued by the Registrar of Companies.||Absence of Act allows it to be registered under various schemes like GST, MSME, Shops and Establishments, etc.|
|Tax Rules||The business is treated as a company and is thus taxable separately.||The income of the business is considered as the income of the owner and is hence not separately taxable.|
|Complying Rules||The business has to comply with all the necessities stated for Companies.||Although less, there are some basic compliance for sole proprietorship as well, like GST.|
|Data||Publicly available on the Ministry of Corporate Affairs Portal.||No data available for the Public.|
|Creditability||High due to transparency. Raising funds through loans is much easier.||Comparatively low and depends on the owner entirely.|
|Name Registration||Unique and complies with the copyright rules followed by companies.||Can be anything and may lead to confusion.|
|Constitutional Documents||The Memorandum of Association and the Articles of Association, in other words, MoA and AoA are considered the constitutional documents for One Person Company.||Sole Proprietorship Firm in the absence of any act treats the owner as everything for the company and thus does not require any such documents.|
|Conversion Condition||Conversion of one person company registration requires an average annual turnover of 2 crores for 3 years or minimum share capital of 50 lakhs.||There is no defined requirements for the conversion of sole proprietorship firm registration into another business entity.|
One might argue about the simplicity of sole proprietorship, but the limited liability protection in one person company cannot be overlooked. Based on the nature of your business, Taxwink helps you find alternate options like Online Partnership Firm Registration for your business as well.