Individual Business Setup – Proprietorship or OPC?

In the Indian context, establishing a private enterprise usually requires selecting the appropriate disposal under which it shall run. Two common types are a Sole Proprietorship and a One Person Company (OPC). Both allow one person to run a business, yet in the registration, liabilities owed, compliances residing and opportunities of growth, these are all quite different. If you thoroughly understand such operational differences, you will be able to make a more informed choice appropriating your particular business purpose. 

What is a Sole Proprietorship? 

A Sole Proprietorship is the simplest form of business structure, whereby an individual owning, controlling, and managing the business. It is not considered a separate legal entity, which means that the owner and the business are one and the same.

Advantages of Proprietorship:

• Easy to start with minimal compliance
• Full control complete powers of decision.
• Low registration and low operating cost
• Suitable for  small scale business or small traders.

Limitations:

• Unlimited liability wherein personal assets may be used to meet a business debt. 
• Lack of recognition as a corporate entity limits opportunities for growth.
• Burden for external funding.

What is a One Person Company?

An OPC is a private limited company that lets one person enjoy limited liability during independent prosecution of the business. It was provided for under the Companies Act, 2013, to promote entrepreneurship.  

Advantages of an OPC: 

• Limited liability protection-hence, personal assets are safe.
• Recognized as a separate legal entity.
• Easier to raise funds as compared to proprietorship.
• Builds trust among clients, investors, and banks.

Limitations: 

• Higher compliance than proprietorship.
• Must convert into a private/public company as soon as certain thresholds are crossed (?50 lakh paid-up capital or ?2 crore turnover).
• Again not suitable for very small businesses or single professionals.

Basic differences:

Which One Should You Choose?

• If you want a small starting point, low risk, and nominal investment, a Proprietorship would be it.
• If you want limited liability, better growth potential, and a more structured format, then an OPC would be the way to go.

Final Thoughts

Deciding between Proprietorship and OPC depends on your idea of good business, plans to scale up, and risk appetite. Proprietorship is the most affordable option if you are looking to engage in small-scale, low-risk business. But if you wish to expand, have credibility with customers, and have longevity, your best option is to register as an OPC.