The difference between a company and Sole proprietorship is related to the formation. Therefore sole proprietorship business is easy to form and it has very less legal formalities on the other hand company has a lot of legal formalities and expansive formation.
The business which is owned and managed by a single person is called as a sole proprietorship. In other words, it is a one-man army because the owner of this business is having overall control over all the activities. This type of business is having very less legal formalities as compared to other types of businesses (partnership ,joint-stock companies) etc.
Sole trader business is a type of business unit one where one person is solely responsible for providing the capital, for bearing the risk and for the management of the business.
Meaning of company?
Company is a legal entity formed by a group of individuals to engage in the commercial or industrial business. We can classify the company as a partnership, joint-stock company, private company, public company. The company have its own common seal and it is an artificial person because it has its own name and bank account.
According to the definition of a company by the Indian Act 2013
“A registered association which is an artificial legal person, having an independent legal, entity with perpetual succession, a common seal for its signatures, a common capital comprised of transferable shares and carrying limited liability.”
Points of differences | Sole proprietorship | Company |
| Meaning | The business which is owned and managed by a single person is called as a sole proprietorship. | Company is a legal entity formed by a group of individuals to engage in the commercial or industrial business. |
| Formation | The sole proprietorship is very easy to form and having very less legal formalities. | Company is formed by getting registration under the company act with a lengthy and costly procedure. |
| Capital | limited capital is required for starting the sole proprietorship business. | A huge amount of investment is needed for starting the company. |
| Liability | The liability is unlimited under the sole proprietorship and owner is a person who manages and pays all the debts alone. | The liability of the members is limited according to the capital invested by them.
|
Risk and loss | In the sole proprietorship business, the only owner bears all the risk and losses. | The risk and loss are shared by all the members of the company according to the capital contributed to the business. |
| Management | All the business operation are managed by the owner and the owner takes all major decisions of the business. | In the company, the Board of directors and professionals are managing the operations of the company. |
| Members | In a sole proprietorship, there is only one member who manages all business operations. | In Private and Public Company minimum two members are required. |
| Continuity | Sole proprietorship can’t exist without the owner. | The company stable and continues as the death of any member does not affect the existence of the company. |
| Legal entity | In Sole proprietorship, there is no separate legal entity. | Company is a separate legal entity from its members. |
| Example | Any grocery store which is owned by a single person like ABC general store. | Examples of the company are Reliance Industries Ltd., Apple, Samsung. |
| Governed by | The sole proprietorship has no particular act. | Company is governed by the Companies Act. |
Conclusion:
Thus, a sole proprietorship business is owned and managed by a single person on the other hand company is an association of two or more persons. Sole proprietorship can’t exist without the owner but the company stable and continues as the death of any member does not affect the existence of the company.
Created & Posted By Ravi Kumar
CA Article at TAXAJ
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