Sole Proprietorship vs One Person Company
Are you planning to start your business in Chennai? Confused about whether you should register as a Sole Proprietor or start a one-person company (OPC)? Both structures allow a single individual to own and operate a business legally in India. However, they are quite different in terms of legal status, liability, compliance, and tax implications. A sole proprietorship is not a separate legal entity; the business and the business owner are considered the same in the eyes of the law. The One Person Company (OPC), on the other hand, is a separate legal entity registered under the Companies Act, 2013.
In this blog, we will compare Sole Proprietorships and One-Person Companies in detail so that you can make an informed choice that suits your vision.
What is a Sole Proprietorship?
A Sole Proprietorship is the simplest and most traditional form of business ownership in India. It is not a separate legal entity; the business and the owner are considered the same in the eyes of the law.
Features:
- No formal registration is required except local licenses like GST, MSME, etc.
- The owner is the decision maker of the business entity and controls all operations.
- Profits and losses of the business belong entirely to the proprietor.
- The business owner has unlimited liability, i.e., their personal assets are not protected and are subject to the operational profit or loss.
What is a One Person Company (OPC)?
A One-Person Company is recognized under the Companies Act, 2013. It is a unique business structure in which a single person can enjoy the benefits of a corporate entity without the need for a second shareholder or partner.
Features:
- It is a registered company with the Ministry of Corporate Finance and has its own legal identity.
- The business owner has Limited liability, and their personal assets are protected from the business’s profits and losses.
- The company is mandated to comply with ROC filings and annual returns.
- The company can raise funding and have better credibility than a sole proprietorship.
Sole Proprietorship vs One Person Company
Criteria
| Sole Proprietorship | One Person Company (OPC) |
| Legal Status | It is not a separate legal entity | It has a separate legal entity from its owner |
| Registration | Not mandatory | The company has to be registered under the Companies Act, 2013, on the MCA portal through SPICe+. |
| Owner’s Liability | Unlimited (personal assets at risk) | The liability of the owner is limited to the extent of the capital contributed. |
| Compliance Requirement | Minimal | High compliance requirements such as RoC filings, audits, etc. |
| Taxation | Individual tax slab rate | Taxed a private company at the rate of 22% + surcharge |
| Credibility | It has lower credibility and is less recognized by banks or investors | It has higher credibility in the eyes of stakeholders. It is suitable for credit, tenders, and contracts. |
| Transferability | Non transferable | Can be transferred to the nominee with the share transfer process |
| Perpetual Succession | Ends with the death/incapacity of the proprietor | Continues with the nominee or legal heir |
| Conversion Option | Cannot be converted into a company | Can be converted into a Private Limited Company |
Sole Proprietorship vs One Person Company Post Registration/Incorporation Compliances
Compliances
| Sole Proprietorship | One Person Company (OPC) |
| Statutory Audits | Not mandatory unless turnover exceeds tax limits | Mandatory every financial year, irrespective of turnover |
| Annual Filing with MCA (ROC) | Not applicable | Mandatory under the Companies Act, 2013 Forms such as AoC-4, MGT-7A, DIR-3 KYC needs to be filed every year |
| Maintenance of Books of Accounts | Not mandatory unless under tax audit | Mandatory under the Companies Act, 2013. |
| Income Tax Return Filing | Filed under ITR-3 or ITR-4 (individual slab) | Filed under ITR-6, corporate tax structure |
| Appointment of Auditor | Not required | The auditor has to be mandatorily appointed within 30 days of the incorporation of the company. |
| Board Meetings | Not required | At least one meeting in each half of the financial year. |
| Corporate Tax Compliance | Taxed as individual income | Corporate tax applicable with surcharges and cess |
| GST Returns | Applicable if the turnover exceeds ₹20 lakhs | Applicable under GST law, same as proprietorship |
| TDS Returns | Based on the nature of business payments | Applicable if liable to deduct TDS as per the Income Tax Act, 1961. |
Which One Should You Choose?
Choose Sole Proprietorship if:
- You are starting a small business with minimal investment
- You want complete control without corporate compliance
- You do not need to raise external funding or deal with formal contracts
- Your business is low-risk and operates in a local market
Choose a One Person Company (OPC) if:
- You want to limit your personal liability
- You aim for growth, investment, or brand credibility
- You plan to scale beyond a single founder
- You want the business to continue legally beyond your lifetime
Why Chennai Filings?
Whether you are opting for a Sole Proprietorship or an OPC, Chennai Filings offers expert guidance at every step. We help you choose the proper structure according to your needs and vision and handle all registration paperwork. We also ensure that your business structure complies with the mandatory requirements after registration.
We provide:
- Hassle-free registration process
- Transparent and affordable pricing
- End-to-end legal, tax, and compliance support
- Dedicated experts to guide you one-on-one through the entire registration/incorporation process
Frequently Asked Questions (FAQs)
1. Is GST registration mandatory for a Sole Proprietorship?
No, it is mandatory only if your annual turnover exceeds ₹20 lakh or if you deal in interstate supply.
2. Can a Sole Proprietorship be converted to an OPC?
No. However, you can legally close your proprietorship and form a new OPC.
3. Is an audit mandatory for an OPC?
Yes, an OPC must appoint an auditor and file annual audited financials, even if there is no revenue.
4. Who can register an OPC in India?
Only Indian citizens and residents can incorporate an OPC. Foreign nationals cannot register an OPC.
5. Can I run a business without registering it?
Yes, you can operate as a Sole Proprietor without formal registration. But registration enhances credibility and opens access to credit and legal protection.
6. Can an OPC have employees?
Yes, an OPC can have employees just like any other company. You can hire and pay employees, deduct TDS, and comply with labour laws.
7. What happens to OPC if the owner dies?
The nominee becomes the new shareholder, allowing the company to continue operations legally.
8. Does OPC need a physical office in Chennai?
Yes, a registered office address in Chennai or Tamil Nadu is required to file for incorporation.