The One Person Company is fairly a new concept in India, and most entrepreneurs are still unknown about how it works. On the other hand, sole proprietorship has been the preferred business vehicle for people wanting to run a business individually.
Many confuse a one person company with sole proprietorship- however, they are entirely different, depending on how they operate. In this article, we define the both of them, and look at the basics on how they differ from one another.
A sole proprietorship is an ownership of a person. The business doesn’t stand as a separate legal entity, but ‘belongs’ to an individual. That particular individual will be liable for all the losses and debts, but will also have the rights for all the money that the business makes. In other words, the personal funds aren’t protected from the funds of the company.
One Person Company
A one person company isn’t the ownership or a person, but stands as a separate legal entity. In simpler terms, it is a private limited company, which has one available share, taken by a single person. Thus, the personal funds are protected from the funds of the business. The ‘shareholder’, or the beneficiary, similar to the sole proprietorship will make the money that the company makes, but will have to pay for the losses; but in cases the company goes down, their personal wealth is still protected.
Which One Should You Go For?
We talked with a popular CSP, 3E Accounting India for the answer.
At the first instance, anyone who wants to register a company would say a one person company is the best. However, remember that it has its own downsides, like the maximum amount of share capital is only Rs. 50 lakhs and you need to turn it into an LLC if the profit is more than Rs. 2 crores. Furthermore, if you register the company as a one person firm, the company’s operations should continue even after the beneficiary’s death.
Remember, foreigners and NRNs can’t open sole proprietorship or a one person company. You can talk to your India company incorporation services for more information.