Generally, business holders who have just initiated their business are baffled when it comes to concluding the right business structure for registering their business. One-person company (OPC) and sole proprietorship look nearly identical, but specific distinctions are given below. You can conclude the right business structure grounded on the given inputs.
Still, you’ll have two options to choose from a one-person company (OPC) and a sole proprietorship, If you’re initiating the business and eager to have complete control over it. As you would anticipate, they both have their pros and cons, and you can not say that one is better than the other without indeed a slight difference. The crisp answer is that the One Person Company registration is better formed-sized businesses, while sole proprietorship registration is better for small businesses. Now, let’s examine the distinctions betwixt the two to check out which one is suits your business more.
Liability of the promoter
The sole proprietorship is entirely vulnerable as his/ her liability is unlimited. This means that if the business can not repay its debts, the creditor can have your personal assets sold off to recover the amount. This can do because a sole proprietorship isn’t separate legal reality from its proprietor. While on the other end, the director of the one-person company (OPC) is entirely defended in similar situations. As the reality is fairly unique from its director, his/ her personal assets are always defended. That’s why if your business doesn’t involve much money, also you should go with the sole proprietorship, and if it’s contrary, also you should go with the one-person company (OPC).
Start-up costs
The cost of a sole proprietorship is primarily cheaper given that there’s no need for registration. However, as a person, gain GST registration and license under the shops and establishment act, If you. The costs of these registrations are minor, generally around Rs. Five thousand each. Getting an OPC registered shall have various registrations and formalities to be taken care of. It would bring around Rs. 15000.
Tax benefits
Neither has any tax benefits, so let’s keep that away. With the one-person company, you bear to pay taxes at a flat rate of 25 ( subject to turnover) on profits. You’re needed to pay DDT ( dividend distribution tax) and minimal alternate tax (MAT). Sole proprietors should pay at the individual slab rate but do have some conveniences; for case, if your development isn’t more than Rs. one crore, you can declare profits at a flat eight percent.
Annual compliances
Sole proprietorship requires only to submit ITR and maintain their books of accounts. At the same time, one-person company (OPC) should also have their books checked, make annual submissions, and inform the RoC in case of any changes being made in the structure. OPC would spend at least Rs. Ten thousand on compliances.
Primarily, you aren’t obliged to choose betwixt the two. It relies on your business. However, conclude for a sole proprietor, If you’re a one-person business with low risk. Else, you would like a formal structure similar to a one-person company (OPC).