Proprietor Vs Private Limited Company

INTRODUCTION:

A business entity can have different business structures, like Proprietorship, Partnership, Company (Private company or Public company), etc. All structures have their own pros and cons and legal requirements. Selecting a proper business entity is among the first decision taken by an entrepreneur. With the introduction of the Limited Liability Partnership Act and the Companies Act, 2013, more choices of business entities are now available. Therefore, it is important for an entrepreneur to choose the right one.

Proprietorship Firm

It is a business entity formed within the name of one person. That person owns the business, manages it and controls its various operations. It is often created by a person who wants to start a business without browsing various legal formalities. the only Proprietor must be a Citizen of India and a Resident of India. The difference between the owner and this business form is next to negligible. At now, the owner may plan to absorb one or more partners to make sure that the business continues to flourish. If you own a sole proprietorship, you're entitled to all or any profits and are liable for all of your business’s debts, losses, and liabilities.

Advantages of Proprietorship Firm:

• A sole proprietorship is the simplest and least expensive legal structure to determine. Costs are minimal, with legal costs limited to obtaining the required license or permits.
• Because you're the only owner of the business, you've got complete control over all decisions. You aren’t required to consult anyone else once you got to make decisions or want to form changes.
• Sole proprietorships don't pay special franchise or corporate taxes. Profits are taxed as income as reported on the owner’s individual income tax return.

Pvt Ltd Company

Private Ltd. could also be a corporation that's held privately by the members. within the case of a private Ltd., the liability of the members is restricted to the number of shares respectively held by them. The liability arrangement during a personal Ltd. is that of a limited partnership, wherein the liability of a shareholder extends only up to the number of shares held by them. The owners of the corporate aren't responsible for any losses incurred by them. this suggests that they can't sue for damages if their share price falls below the worth of their shares and the other way around. additionally, the owner of personal Ltd. Has no right to sue for damages arising from the sale of shares or other assets.

Advantages of Pvt Ltd Company:

• The liability of the members on a winding-up is restricted to the number unpaid on their shares. Shares of an organization limited by shares are transferable by a shareholder to the opposite person.
• The transfer is simple as compared to the transfer of interest within the business run as a proprietary concern or a partnership.
• This Capital that you simply invest within the company isn't an Asset of the corporate, it’s a "Liability" of the company.

Difference between proprietorship and a private limited company?

So, there is a question that is frequently raised and that is What is the difference between proprietorship and a private limited company? and generally finding the difference between proprietorship and a private limited company is quite tough, there are many factors that they relate and many on which they differ. Proprietor and therefore the Proprietorship is an equivalent for calculation of liabilities. The assets and liabilities of the Proprietorship are the assets and liabilities of the Proprietor post which he/she got to file a traditional return and show the profits earned within the business therein return itself. Separate return isn't required for the Proprietorship. Also, the tax is calculated at tax slab rates applicable to a private. Other tax liabilities like GST depend on the character of business. Whereas a personal Ltd. may be a corporate entity. So, the company tax applies thereto as per the Tax Act, 1961. alongside a company tax, the corporate is additionally required to pay Dividend Distribution Tax (DDT) on the dividend distributed to its shareholders. it's necessary to file its tax return mandatorily. Other tax liabilities like GST depend on the character of business.

But the major difference between proprietorship and a private limited company is a One Person Company creates a separate legal entity as contrasted with a Proprietorship where the proprietor and therefore, the entity are the same. An OPC allows for the limitation of liability whereas during a Proprietorship liability is unrestricted and extends to the individual’s assets. A perceived benefit in starting an OPC is that it can help attract investors who weren't keen to take a position during a Proprietorship due to the risks imposed by unlimited liability. An OPC is additionally exempt from the necessity to conduct general meetings and committee meeting. That said all resolutions passed need to be entered within the minute book and provisions concerning financial statements and accounts and audits are still applicable. during a Proprietorship against this audit would wish to be administered only as per the Tax Act on the turnover exceeding the edge. the most important deterrent to choosing an OPC over a Proprietorship is that an OPC would be charged at the 30% base rate, minimum alternative tax (18.5%) and dividend distribution tax (15%) also. the method of fixing an OPC requires time and paperwork. Expenses within the sort of hiring a lawyer and a corporation secretary to try to the required drafting work are another deterrent. Further, a reason why many individuals would have an interest in starting an OPC is the possibility that it might be converted into a personal Ltd. within the future. this is often something that ought to be technically possible but practically difficult at the present thanks to lack of clarity in rules and regulations. Pvt. Ltd. Company name must be approved by the Registrar of the corporate. The key difference between proprietorship and Pvt. Ltd. is Pvt. Ltd. will end with words Private Ltd., whereas in Proprietorship there is no need for approval before using the name.

Can a private limited company be a proprietor in India?

There is always an objection between the people that can a private limited company be a proprietor in India? the simple answer of that would be No. However, it can receive cheques during a registered name/name belonging thereto and supply a copy of registered brand name to the bank to clear the cheques and credit to the account belonging to non-public Ltd. because of the owner of the brand name as applicable. You can collect the cheques based on your company name. A Pvt. Ltd. may be a registered entity type but a sole proprietor is an unregistered entity type. So, you can't convert a personal Ltd. to a sole proprietorship.

You need to formally close the Private Ltd. and begin afresh proprietorship firm.

Conclusion:

Both the sorts of an entity have some advantages and drawbacks. Proprietorship firms are good at rendering tax-free income and mental peace, whereas Private Ltd. is all about credibility, transparency, and better business practices. If you would like to handle all the liabilities on your own and seek negligible intervention and low tax burden, then proprietorship is that the best choice. A Private Ltd. offers significant advantages over the proprietorship sort of business, including that of indebtedness, ability to draw in equity capital, continued existence and more. Although there is a yes and no in the conversion of a Pvt. Ltd. company into a proprietor. However, it might be best if you kept in mind that non-public limited firm attracts tax to a substantial degree and sometimes expose to cess. We strongly believe that you simply have now got a better idea concerning Proprietorship Firm vs Private Ltd., be happy to supply your valuable feedback through the comment section just in case if you would like any assistance.