When it comes to registering their business, business owners who have just started their business are frequently baffled when choosing the correct business structure. The differences between a sole proprietorship and an OPC seem almost identical, but there are certain distinctions to consider. According to the inputs you provide, you can determine which business structure is best for you.
If you want complete control over your company, you have two options: the one person company (OPC) and the sole proprietorship. They both have their pros and cons, and you cannot compare them without even a slight difference. The One Person Company registration is best for mid-sized businesses, while the sole proprietorship registration is best for small businesses. Here are the differences between the two so you can see which one will work best for your business.
Liability of the promoter
It is impossible for the sole proprietorship to be protected since his/her liability is unlimited. In the event that the business cannot repay its debts, the creditor may sell off your personal assets to recover the money. Due to the fact that a sole proprietorship is not a separate legal entity from its proprietor, this can occur. A one-person company (OPC)’s director is, on the other hand, completely protected in such situations. The entity is legally independent of its director, so his or her assets are always protected. So, if your business doesn’t involve much money, then you should go with a sole proprietorship, and if it does, then you should go with an OPC.
Start-up costs
Due to the absence of registration requirements, sole proprietorships are generally more affordable. An individual who obtains GST registration and a license under the shops and establishments act is referred to as a sole proprietor. There is no cost associated with these registrations, generally around Rs. A total of five thousand each. In order to become an OPC, various registrations and formalities must be completed. In total, it would cost around Rs. 15000.
Tax benefits
Both have no tax benefits, so let’s put that aside. Taxes on profits are charged at a flat rate of 25% (subject to turnover) for a one-person company. There is a dividend distribution tax (DDT) and a minimum alternate tax (MAT). However, sole proprietors have a few conveniences, such as the option to declare profits at a flat eight per cent if their turnover does not exceed Rs. one crore.
Annual compliances
As a sole proprietorship, you are only required to submit your ITR and maintain your books of accounts. Also, one-person companies (OPCs) should have their books audited, make annual submissions, and inform the RoC of any changes to the structure. As a minimum, the OPC would spend Rs. A ten-thousand dollar compliance fee.
First of all, you don’t have to choose between the two. It depends on the nature of your business. Sole proprietorship is a good choice for one-person businesses with low risk. If not, you should consider a formal structure like a one-person company (OPC).
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