What is the difference between proprietorship and Private Limited?

kbadmin

1 year ago

Proprietorship and Private Limited

Here are some of the significant contrasts:

Ownership:

A proprietorship is solely owned and controlled by an individual, whereas a Private Limited Company is owned by shareholders, with the company’s management entrusted to the Board of Directors.

Liability:

In a proprietorship, the owner bears unlimited liability, implying personal responsibility for all business debts and losses. Conversely, in a Private Limited Company, shareholders’ liability is limited to the extent of their shareholding.

Legal entity:

A proprietorship is not consider a separate legal entity from its owner, implying that legally and for tax purposes, the owner and the business are treat as one. Conversely, a Private Limited Company is recognize as a distinct legal entity from its shareholders, allowing it to enter contracts, file lawsuits, own assets and liabilities independently.

Funding:

Typically, a proprietorship relies on the owner’s personal savings or loans for funding, while a Private Limited Company has the capability to raise funds from external sources such as investors, banks, and financial institutions.

Taxation:

In a proprietorship, the owner is subject to personal income tax rates. In contrast, a Private Limited Company is subject to corporate tax rates, and the shareholders are tax on the dividends they receive from the company.

Overall, while proprietorships offers a simpler and more cost-effective means to commence a business, a Private Limited Company provides greater scalability, limited liability, and the ability to secure funds from external sources.

https://www.incometax.gov.in

FAQs

1.What is a Proprietorship?

Answer: A proprietorship is a business own and run by a single individual, with no legal distinction between the owner and the business.

2. What is a Private Ltd Company?

Answer: A Private Limited Company is a separate legal entity, where ownership is divide into shares, and it limits the liability of its shareholders.

3. Who controls a Proprietorship?

Answer: The proprietor has full control over the business, making all decisions independently.

4. How is control divided in a Private Limited Company?

Answer: In a Private Limited Company, control is divided among shareholders and directors, following the company’s Articles of Association.

5. What is the liability difference between Proprietorship and Private Limited?

Answer: In a proprietorship, the owner has unlimited liability, meaning personal assets are at risk. In a Private Limited Company, liability is limited to the value of shares held.

6. How is taxation handle in a Proprietorship?

Answer: In a proprietorship, business income is tax as the individual owner’s personal income.

7. How is taxation handled in a Private Ltd Company?

Answer: A Private Limited Company is tax separately as a legal entity, and profits are subject to corporate tax.

8. Can a proprietorship raise funds easily?

Answer: No, a proprietorship has limited ability to raise funds, as it depends on the owner’s resources and personal credit.

9. Can a Private Limited Company raise funds?

Answer: Yes, a Private Limited Company can raise funds by issuing shares or borrowing from financial institutions.

10. What is the registration requirement for a Proprietorship?

Answer: A proprietorship has minimal registration requirements, often needing just local business licenses.

11. What is the registration process for a Private Ltd Company?

Answer: A Private Limited Company must be register with the Ministry of Corporate Affairs and follow specific regulations for incorporation.