The one-person company structure is a business opportunity that is unique to India. This new type of business entity allows an individual entrepreneur the opportunity to operate a corporate entity with protections that are similar to what you would experience with an LLC in the United States. This structure was first introduced in 2013.
Although the structure is unique to India, the advantages and disadvantage is that solo entrepreneurs experience with this entity are the same as what everyone else experiences under similar circumstances around the world. You can even convert this company into a Private Limited Company if it crosses an annual revenue threshold of Rs. 2 crores, giving yourself an opportunity to expand when needed when pursuing a good idea.
There are some distinctive challenges to consider when you are operating a business on your own. You will have access to fewer supports, have less diversity available, and be responsible for every aspect of your existence. You can outsource certain tasks like marketing and advertising, but you will also be responsible for every component of your daily operations.
If you’re thinking that being in business for yourself is a good idea, then here are the pros and cons of a one-person company to consider (or a one-person LLC or sole proprietorship in other parts of the world).
List of the Pros of a One-Person Company
1. A one-person company has the same rights and privileges as any other business.
When you decide to start your own business, then a one-person company has the same rights and privileges that any other organization would have from the very beginning. You have the ability to create goods or services that you can sell online or to your community directly. It is possible to organize your business as an LLC to protect your personal assets in case of legal trouble. You can also began operating right away as a sole proprietor with a minimal amount of paperwork required before creating your first sale.
2. You always get to be your own boss in this structure.
If you are the only person in the organization, then you get to be your own boss. You are the one who gets to call all of the shots. If you decide that you don’t want to work with specific customers, then there is no need to come up with a justification for that decision. Your ideas, creativity, and strength become the foundation of what can eventually lead you to a prosperous opportunity.
3. It gives you a chance to work from home.
Although it can get lonely at times when you are working by yourself in your own company, there are plenty of advantages to consider when you can create a home office. There are no lease charges beyond what your monthly rent or mortgage would be to operate your business. The expenses that you incur when conducting business are often tax-deductible. You can also reduce your income on your tax return each year by itemizing the expenses which are associated with your work that happens at home.
4. You get to set your own schedule – to a point.
When you are working on your own, then you get to decide what your schedule will be every day. There is some flexibility here because you can decide to work in the morning, evening, or somewhere in between. If you want to stay in business, then you will need to accommodate the schedules of your customers, so there aren’t the opportunities to take random vacation days if you plan on making money. You will receive more ways to flex your time in a one-person business than you would with a more traditional form of employment.
5. There are fewer reporting requirements to follow in a one-person business.
When you are operating as a one-person company under the LLC structure, then the reporting requirements for organizations are relaxed for you in the jurisdictions which allow this type of business. You do not need to hold a general meeting or an annual gathering each year to report on the status of your business. Because you were the only person, there is no need to maintain a quorum during a meeting. You are not asked to maintain minutes, there are fewer forms to file, and in the jurisdictions where there is a mandatory rotation of an auditor, this service is not required either.
Some exceptions may apply depending on where you operate your business, so check with your Secretary of State, Department of Labor, or equivalent office to determine what all of the advantages of being a one-person company can be for you.
6. It can give you access to business loans and capital.
When you are working a side hustle without formally incorporating your business, then there are fewer opportunities available to raise capital or access a loan from a lender when you need some extra cash. Incorporating as a one-person business gives you the advantage of accessing these resources. Although you may not find investors willing to give you capital as a sole proprietor, there may be opportunities for those who incorporate as an LLC. There are more opportunities to access working capital loans, while entities like the Small Business Administration can help you structure your company in ways that will offer you more stability.
7. You can transfer the business to someone else easily in India.
If you take advantage of the one-person company structure in India as an entrepreneur, then the ownership of your business can be easily transferred through the use of shares. The signing, filing, and transferring of them through share certificate is sufficient to transfer the ownership of your company to someone else. All you need to do is transfer the directorship and nominate director information to profit from your hard work. That is a distinctive advantage compared to LLCs and sole proprietorships that typically stop operating when the owner is ready to move on to another project.
8. You get to design your own office.
When you are operating under this corporate structure, then you have the power to design an office that meets your needs effectively. You can fit your office in whatever space works best for your life. There are people who use their kitchen bars as standing desks to work during the day. You can shove a desk into a corner to create a private spot in which to operate. If you want to convert a closet to turn it into a hidden space, that is also a possibility. You can even decide to lease space commercially if you wish once you decide to incorporate your company.
9. A one-person company can help you to save a lot of money.
When you decide to become your own boss, and you will discover that there are a lot of ways where you can save money thanks to the one-person company structure. You no longer have the same time and cost commitments for commuting as you would with a traditional employer. There is no longer in need to purchase formal business attire just to earn a paycheck. You don’t need to keep separate items for work and then for the rest of your life. It’s even easier to save money on your food and beverage expenses because you can source items from home instead of buying coffee or eating lunch somewhere every day.
10. It helps you to become more independent.
When you are operating a one-person company, then you must become dependent on your own skills when there are answers that you must find. That is because there are no longer co-workers available a few feet away who might have the expertise that you need. There are still plenty of opportunities to ask questions, but you will discover that most of the time your quest for knowledge involves downloading free guides, performing searches, or asking your network if they have any solutions. This process helps you to become more independent.
11. You will begin to develop numerous professional skills simultaneously.
When you are operating as a one-person company, then you will notice that there will be some skills that you develop because you need to have them as part of your daily duties. Your writing will become more precise because you’re trying to power through emails as fast as you can. You will become more sensitive to the needs of your vendors, distributors, and customers. Many people in this situation discover that they can stay organized with a minimum effort when they know how to prioritize their tasks effectively.
12. The meetings of a one-person company are typically more enjoyable.
If you are used to the meetings in the typical employment relationship, then you are familiar with the idea of being stuck in a stuffy room with stale donuts next to a person who always wants to click their pen. When you create a one-person company where you get to be your own boss, then the structure of your meetings with vendors, distributors, and customers changes. You get to be in control of the process. That means you can share more information in a shorter time period. It is not unusual for your meeting times to reduce by 70%.
13. You have an opportunity to avoid office politics.
Maybe you’ve heard the expression that you “can’t choose your family.” The same is true for your co-workers. If you pursue a traditional form of employment, then your only options are to accept or reject an employment offer. There will always be office politics wherever you find work, whether you’re based in India, the United States, or Europe. When you decide to start working on your own, then you can avoid many of the political issues that happen with these close relationships. You will find yourself in more of a remote atmosphere, allowing you to stay focused on the work that needs to happen instead of worrying about posturing for the next potential promotion.
14. A one-person company can help you to get more work done.
Most owners of a one-person company find that when they can establish a steady routine and engage their willpower that it becomes possible to ignore the distractions in their environment. Social networking, television, and technology become tools that you can use to enhance your productivity. There are no longer people stopping by your office to ask you a “quick question” that lasts for 20 minutes either. You can decide to wake up, turn your equipment on, and then pursue the next great idea that you have as a solo entrepreneur.
List of the Cons of a One-Person Company
1. It does not allow you to issue different types of equity.
When you decide to start operating as a one-person company, then you do not have the ability to issue different types of equity securities. India requires that this business type be owned by one person at all times. Because of this structure, many banks and financial institutions still prefer to provide funding to larger organizations or partnership firms because there is more risk involved with financing when there is only one person associated with the company.
2. You are responsible for updating all of your equipment – on your own dime.
When you operate a one-person company, then you are responsible for the functioning of your home office. If your computer systems require an update, then it is up to you to ensure that the work gets done. Although you can enlist the help of your direct family in most jurisdictions for some of these processes, it is up to you to make sure that you have a way to be productive every day. There are no paychecks happening if you are unable to work, which could impact the overall survival of your company if there are frequent interruptions.
3. You’re the one who gets to fill out all of the paperwork for your business.
When you operate as a one-person company, then you are responsible for all of the mandatory documentation that needs to be filed each year. You can hire people or businesses to help with your taxes, receipts, and similar bureaucratic work, but it is ultimately up to you to ensure that the paperwork gets put into the hands of the people who need it the most. Because many of these tasks are internal work instead of revenue-generating interactions with customers, you will need to find a way to minimize these efforts if you’re running on a tight budget.
4. A one-person company pays taxes like a corporate entity in India.
One of the primary reasons why entrepreneurs in India decide to avoid the structure of a one-person company is because of the rules which are in place for corporate taxation. When you are active as a business in this country, then the flat rate of 30% is applied to your income tax without exception. There is no relaxation on the rules for this responsibility as there have been in other parts of the country. Sole proprietors in the United States can even file their taxes as an individual while reporting self-employment income, which is a much easier process to follow.
5. You have a two-year waiting period to convert the company.
Once you have taken advantage of the one-person company structure in India, then your business cannot be converted to a different structure for a minimum of two years. That means you must continue operating by yourself for 24 months after the date of incorporation before you can become a private or public limited company. If your idea takes off rapidly, then you may lose scalability opportunities because of this restriction. This structure is different than what entrepreneurs in other countries experience because they can often convert their business to a different structure whenever it is necessary to accomplish their overall goals.
6. A one-person company cannot invest into shares and securities.
Although your personal finances can invest into the shares and securities of other businesses in India, your business does not have this right. That can make it difficult to grow your revenues during the first days of operation because there are limited vessels for diversification. Your company becomes reliant on whatever funding you can secure for it. If nothing is available for your one-person company, then you must rely on your personal finances to ensure the survival of this structure. That is why many of the businesses who choose this structure struggle to survive.
7. You cannot form another company with this same structure in India.
If you are an entrepreneur in the United States, then you have the ability to create unlimited businesses based on the ideas you wish to pursue. This structure is permitted even when taking advantage of the simplicity of a sole proprietorship structure. It is not the same for entrepreneurs in India. The owner of a one-person company which is incorporate. is no longer eligible to incorporate another one as an owner are becoming nominee of another company either. You are stuck in this business opportunity for the next two years.
The pros and cons of a one-person company make it easier than ever before in India to start doing business as an entrepreneur. There are fewer restrictions in place, allowing you to focus on serving your customers instead of fulfilling the bureaucratic requirements placed upon you by the government. As with any solo business operator, you will face unique challenges that could have you working longer hours than you ever imagined. You might also find this opportunity to be the most rewarding experience of your life.
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