– Abul Kalam Azad Sulthan, Advocate, High Court of Judicature at Madras and Madurai Bench of Madras High Court & Partner, Spicy Law Firm.
There are several differences, several advantages, and disadvantages in both forms of business. A sole proprietorship is very simple to form and does not require much paperwork to start with. But, a Company requires paperwork which has to be verified by a Professional (CA, CMA or CS) before filing with the Registrar of Companies. There are several stages, namely applying for Director Identification Number, Name Approval by Ministry of Corporate Affairs, the filing of various forms and finally applying for PAN and TAN once the company is incorporated.
There is no much compliance requirements for Sole Proprietorship business, but in the case of a Company, it should comply with statutory requirements like General Meetings and filing of annual returns,
If there is any loss, a sole proprietor is responsible totally. But in the case of a Company, the liability is limited. If you want to raise funds for your business, a Company is the best option as it will attract venture capitalists and investors. But a Sole Proprietorship can not raise funds.
You will need at least two persons (including yourself) to incorporate a company. In case, if you want to own the Company yourself, there is a new form of Company in India, One Person Company (OPC). OPC is operated by One Person as like a Sole Proprietorship and enjoys the advantages of a Limited Company.
One Person Company combines the advantages of Sole Proprietorship and Company. The disadvantage of a One Person Company is, it can not raise funds unless it is converted to a Private Limited Company.
To summarise, a Sole Proprietorship business is easy to start, no much paperwork and less expensive. In the case of a Private Limited, you need at least two persons to form a Company, there are strict compliance requirements and expensive. But, a company limits your liability for losses, easy to raise funds and a well-recognized form of business. OPC has advantages of both the forms of business (Sole Proprietorship and a Company), but it can not raise funds for the business. So consider the advantages and disadvantages of these forms of business and take a wise decision based on your requirements.
We, Spicy Law LLP wish you a successful business venture!