How To Choose Between Sole Proprietorship & Private Limited Company?

Basically, if you are starting a business, you want to choose a structure that will help you with your purpose. You can go with a Sole Proprietorship or a Private Limited Company. This decision of yours will define the taxes that you pay, the liability, and also your obligations to the government bodies.

What is A Private Limited Company?

A Private limited company is a company which is privately held for small business. The liability of the members of a Private Limited Company is limited to the number of shares respectively held by the shareholders. Shares cannot be publicly traded. In India, it is the most preferred choice because the debts, the risks, and the responsibilities are made in the company’s name, not in yours.

What Are The Steps To Start A Private Limited Company?

Here are 4 Simple Steps To Incorporate A Private Limited Company

Step 1: Apply for DSC (Digital Signature Certificate) and DIN of the directors.

Step 2: Application for company name reservation.  Read: How To Choose A Perfect Name For Your Company

Step 3:  Obtain a Certificate of Incorporation.

Step 4: Apply for PAN, TAN, and Current Account

Sounds Simple Right?

Super. It is really that easy.  Wondering what next steps to take? You need to provide us with a set of documents.

What Are The Documents Required To Start A Private limited company?

Here is the list of documents required to incorporate a private limited company.

For Directors And Shareholders

Identification of the 2 directors and shareholders (or more) and submit their documents as given below:

1. Identity Proof

– PAN (Indian Nationals) or Passport (Foreign nationals) And

– Passport / Driver’s License / Election ID / Ration Card / Aadhar ID 

2. Proof Of Residence

– Bank Statement* / Electricity Bill / Mobile Bill (Anyone) Not older than 2 months

*if the person has resided at the present address for less than one year, then the previous residential address must also be submitted

3. Passport Size Photographs

4. Director’s Educational Qualification Certificate

5. Proof Of Registered Office

Registered document of title of premises or notarized copy of lease/rent agreement in the company’s name along with a copy of rent paid receipt not older than one month.

NOC from the landlord to use the premises by the company as its registered office.

Utility bills like telephone, gas, electricity, etc. showing the address of the premises in the name of the owner, which is not older than two months.

Great! Now you know everything about a Private Limited company.

Now let’s learn about another type of company which is called a Sole proprietorship company.

What Is A Sole Proprietorship Company?

A Sole Proprietorship is a business set up by one individual. It doesn’t provide a separate legal entity, and you as an entrepreneur will personally be owning all the risks. For example, If you want a loan, you would have to take on your name, and the responsibility comes on your shoulders. But this type of company is elementary to manage and start.

What Are The Steps To Establish A Sole Proprietorship?

Here Are 3 Simple Steps To Start A Sole Proprietorship-

Step 1: Choose a name for your business.

Step 2:  Open a bank account in the name of your business.

There is no formal registration required, but can be obtained through either of the following ways:

– Register as a Small and Medium Enterprise (SME) under the MSME Act, or

– Register under the GST Act, or

– Register under the Shop and Establishment Act.

Sounds Simple Right?

It is super easy. Wondering what next steps to take? You need to provide us with a set of documents.

What Are The Documents Required To Start A Sole Proprietorship?

Here is the list of documents required to incorporate a private limited company.

1. Identity Proof

– Aadhaar card of proprietor

– PAN card of proprietor

2. Proof Of Residence

– Bank Statement copy

3. Lease Agreement or Sales Document

Are you a foreigner and confused about which type of company you should opt for? Don’t worry you still can start a company in India and we will be guiding you which type of company is best for you.

Sole Proprietorship is not an option for the ones who are not a citizen of India. They have to incorporate a Private limited company.

Worried About The Taxes You Will Be Paying When You Start A Company?

We have this covered too, so you won’t face any problems.

A private limited organization pays the corporate tax at a rate of 17% and is eligible for the exemptions. A Sole Proprietor company pays personal tax off the income, which is progressive from 0% – 22%. It means that when the earnings are modest, Sole Proprietor will pay less. Once your company generates more profit, you’ll pay fewer taxes if you own a Private Limited Company.

What Are Your Responsibilities And Official Requirements With Sole Proprietorship And With Private Limited?

To start a Sole proprietorship company, you just let MCA know. To incorporate a Private Limited organization, you need to file data on your directors, shareholders, address, approve the company name, etc.

Private Limited Company has more responsibilities when it comes to business administration. You will need to recruit a Company Secretary and file annual returns to MCA if. As a Sole Proprietor, you only need to renew your status with ACRA annually.

Want Funding For Your Company?

Funding is often easier for Private limited companies both with bank loans and by attracting an investor.

A Private Limited organization can be inherited, passed on to another owner or can be sold.

A Sole Proprietorship can’t be separated from the owner of the company.

Here’s a reliable comparison for choosing your business structure

Comparison Between Private Limited Company And A Sole Proprietorship Company

Here is a list of the essential features of the Sole Proprietorship and Private Limited Company:

Conclusion

We hope now it is straightforward for you to choose the type of company you want to start.

Remember, it depends upon you and your businesses, both Private Limited and Sole Proprietorship have their features. So, according to the elements and requirements, you should choose which one to establish.

So ready to take off and start your dream business?

Which one have you chosen? Let us know.

Also, check 5 Things Your Startup Must Stop Doing Immediately now!