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Sole Proprietorship a Sole Proprietorship Is the Oldest And Sole Proprietorship A sole proprietorship is the oldest and most common form of business structure for a small business. A sole proprietorship is a business structure owned, operated and managed by a single individual. Sole proprietorship firm is not a legal entity and does not have a distinct status than the owner. A sole proprietorship is also known as a sole trader or simply a proprietorship. It is a business structure owned and run by a single individual and in which there is no legal distinction between the owner and the business. The identity of the organization is nothing but the individual himself. The owner receives all profits (after tax) and has unlimited responsibility for all losses and debts. He/she is the sole authority to take decisions, enjoy all profits of the firm and is personally liable for all losses of the firm. The proprietorship form business carries unlimited business risk, as the business proprietor is individually responsible to settle all business liabilities. The proprietor's personal assets are at risk to compensate for the business liabilities. How to set up a sole proprietorship firm : In India, there are no specific laws for registration a sole proprietorship. A proprietor may use a trade name or business name other than his/her name. While selecting a name, it is advisable to select a unique name to avoid the potential infringement of an existing trademark. Technically, no registration is required to start a business under sole proprietorship. However, to open a bank account in the name of the firm, a minimum of 2 registrations such as Shops & Establishments, Professional Tax, Service Tax, MSME, etc. under the local, state or central authority is mandatory to comply with the Know Your Customer (KYC) norms of the bank. Even though registration is not essential, the owner has to obtain the necessary licenses specific to his/her line of business such as Shops & Establishments, Professional Tax, Service Tax, VAT, IEC, etc. A sole proprietorship can be registered under the MSME Act to avail the benefits and protection under that act. Its main features are :- . Ease of formation is its most important feature because it is not required to go through elaborate legal formalities. No agreement is to be made and registration of the firm is also not essential. However, the owner may be required to obtain a license specific to the line of business from the local administration. The capital required by the organisation is supplied wholly by the owner himself and he depends largely on his own savings and profits of his business. Owner has a complete control over all the aspects of his business and it is he who takes all the decisions though he may engage the services of a few others to carry out the day-to-day activities. Owner alone enjoys the benefits or profits of the business and he alone bears the losses. The firm has no legal existence separate from its owner. The liability of the proprietor is unlimited i.e. it extends beyond the capital invested in the firm. Lack of continuity i.e. the existence of a sole proprietorship business is dependent on the life of the proprietor and illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain. Advantages: . Ease of formation . Maximum incentive for work . Secrecy of business . Quick decisions and flexibility of operations Hence, this form of organisation is suitable for the businesses which involve moderate risk, small financial resources, capital requirement is small and risk involvement is not heavy like automobile repair shops, small bakery shops, tailoring, etc. It accounts for the largest number of business concerns in India. One Person Company (OPC) The concept of One Person Company (OPC) is a new form of business, introduced by The Companies Act, 2013 [No.18 of 2013], thereby enabling Entrepreneur(s) carrying on the business in the Sole-Proprietor form of business to enter into a Corporate Framework. One Person Company is a hybrid of Sole-Proprietor and Company form of business, and has been provided with concessional/relaxed requirements under the Act. One of the biggest advantages of a OPC is that there can be only one member in a OPC, while a minimum of two members are required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership. Similar to a Company, a OPC is a separate legal entity from its members, offers limited liability protection to its shareholders, has continuity of business and is easy to incorporate. However unlike a Company or a Proprietorship, a OPC is required to nominate one person to take charge in case of death of disability of the sole member. OPC also have to comply with many of the statutory requirements similar to that of a Company; but are also exempt from a few procedural formalities, like conducting Annual General Meetings and Extraordinary General Meetings. The concept of OPC is set to systematize the segment of proprietors, enabling them to commence business with limited personal liability as compare to unlimited personal liability as in case of Sole Proprietorship. it opens various avenues for more favorable banking facilities, particularly loans, to such proprietors and will reduce the paper work as well. Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited. It gives solution to Entrepreneurs under one roof, with the best suitable options available for business and will also provide confidence to all types of entrepreneurs (Small & Medium) to enter into the Corporate World. THE ADVANTAGES OF REGISTRATION OF ONE PERSON COMPANY A One Person Company (OPC) Private Limited has many advantages as compared to Proprietorship firm. 1. Limited Liability Protection To Directors and Shareholder All unfortunate events in business are not always under an entrepreneur’s control; hence it is important to secure the personal assets of the owner, if the business lands up in crises. While doing business as a proprietorship firm, the personal assets of the proprietor can be at risk in the event of failure, but this is not the case for a One Person Private Limited Company, as the shareholder liability is limited to his shareholding. This means any loss or debts which is purely of business nature will not impact, personal savings or wealth of an entrepreneur. 2. Legal Status And Social Recognition For Your Business One Person Company is a Private Limited Structure, this is the most popular business structure in the world. Gives suppliers and customers a sense of confidence in business. Large organizations prefer to deal with private limited companies instead of proprietorship firms. Pvt. Ltd. business structure enjoys corporate status in society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, like directorship. These designations cannot be used by proprietorship firms. 3. Complete Control Of The Company With The Single Owner This leads to fast decision making and execution. Yet he/she can appoint as many as 15 directors in the OPC for administrative functions, without giving any share to them. 4. Helps for Testing of business model and enables Funding The OPC business helps Startup Entrepreneurs to easily test the business model, a prototype and upon building a marketable product approach Angel investors, Venture capitalists for funding and easily convert into multi shareholder Private Limited company. 5. Easy to Get Loan from Banks Banking and financial institutions prefer to lend money to the company rather than proprietary firms. In most of the situations Banks insist the entrepreneurs to convert their firm into a Private Limited company before sanctioning funds. So it is better to register your startup as a One Person private limited rather than proprietary firm. 6. Tax Flexibility and Savings In an OPC, it is possible for a company to make a valid contract with its shareholder or directors. This means as a director you can receive remuneration, as a lessor you can receive rent, as a creditor you can lend money to your own company and earn interest. Directors’ remuneration, rent and interest are deductible expenses which reduces the profitability of the Company and ultimately brings down taxable income of your business. 7. Easy To Manage and Freedom Compliance OPC is one of the easiest forms of corporate entities to manage. Very few ROC filing is to be filed with the Registrar of Companies (ROC). No need to conduct Annual General Meeting (AGM) Terms and Restrictions of OPC • A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company. • Minor cannot shall become member or nominee of the One Person Company or can hold share with beneficial interest. • An OPC cannot be incorporated or converted into a company under Section 8 of the Act. (Company not for Profit). • An OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporate. • An OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond Rs.50 Lakhs or its average annual turnover during the relevant period exceeds Rs.2 Crores i.e., if the Paid-up capital of the Company crosses Rs.50 Lakhs or the average annual turnover during the relevant period exceeds Rs.2 Crores, then the OPC has to invariably file forms with the ROC for conversion in to a Private or Public Company, with in a period of Six Months on breaching the above threshold limits.
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