Sole Proprietorship Vs One Person Company (OPC) in India
Read this article on Sole Proprietorship Vs One Person Company to make the right decision. This article will guide you to choose the best form of business- A proprietorship or One Person Company.
What is Sole Proprietorship?
Sole proprietorship is a type of business entity owned and operated by a single individual. It is the simplest and most common form of business. The owner of the sole proprietorship has complete control over the business. He is personally responsible for all debts and liabilities.
As per the law, as such there is no requirement for formal registration of a sole proprietorship. However, depending on the nature of the business, the proprietor may be need to obtain licenses from the local authorities.
To open a bank account or obtain any government registration, you may need to provide a certificate of registration of the business. Registration Certificate can be obtained by registering the business with the Shops and Establishments Act or obtaining a GST registration. Certificate from practicing CA may be required.
Features and Advantages of Proprietorship
- Easy to start and operate
- Suitable for small businesses with low risk, and it is
- an ideal choice for self-employed individuals, small traders, and professionals
- Can be owned and manged by single member
- Most simplest and common form of business
- Taxed as an individual, proprietor is required to file their personal ITR along with the business income tax return
What is One Person Company (OPC)?
Concept of One Person Company (OPC) was introduced through the Companies Act, 2013, to encourage entrepreneurship and promote ease of doing business.
OPC is a type of business entity that allows a single person to own and manage a company, providing them with limited liability protection.
Unlike a sole proprietorship, an OPC is a separate legal entity from its owner, which means that the company can own assets, enter into contracts, and sue or be sued in its own name. The owner of an OPC has limited liability, which means that their personal assets are not at risk if the company faces financial difficulties or lawsuits.
Advantages of One Person Company (OPC)
OPCs offer several advantages, such as limited liability protection, separate legal entity status, ease of doing business, exemption from holding AGM, greater access to funding and business loans.
- Easy to set up compare to Private Limited Company
- Can be formed by a single person (shareholder cum sole director)
- OPC has separate legal entity from its owner
- OPC can own assets, enter into contracts, and sue or be sued in its own name
- OPC owner has limited liability, which means that their personal assets are not at risk if the company faces financial difficulties or lawsuits.
- OPCs are exempt from holding annual general meetings (AGM)
- Can have a single director on the board
Disadvantages of One Person Company
OPC’s has many advantages. However, they also come with certain limitations, such as a cap on turnover and the inability to issue equity shares to the public.
OPCs are subject to many of the same compliance requirements as private limited companies, such as mandatory audits and annual filings with the Registrar of Companies.
Difference between Sole Proprietorship and One Person Company
A sole proprietorship and a One Person Company (OPC) are two different types of business entities, each with its own advantages and disadvantages. Here are some key differences between the two:
Legal status: A sole proprietorship is not a separate legal entity from the owner, whereas a One Person Company is a separate legal entity from its owner. This means that the OPC has a distinct identity, separate from its owner, and can own assets, enter into contracts, and sue or be sued in its own name.
Liability: In a sole proprietorship, the owner is personally liable for all the debts and obligations of the business. In an OPC, the liability of the owner is limited to the extent of his/her investment in the company, and the owner’s personal assets are not at risk.
Maintenance and Compliance: A sole proprietorship is easy to start and maintain and has minimal compliance requirements. On the other hand, an OPC is governed by Companies Act 2013, subject to more stringent compliance requirements, such as mandatory audits and annual filings with the Registrar of Companies.
Perpetual existence: A sole proprietorship is a business that exists as long as the proprietor is alive and willing to run it. If the owner passes away or decides to sell the business, the sole proprietorship ceases to exist. In contrast, an OPC has perpetual existence, meaning it can continue to exist even if the owner passes away or decides to sell the business.
Funding: A sole proprietorship is typically funded by the owner’s personal savings or loans from friends and family. An OPC can raise funds from investors by issuing shares.
Which one best – Sole Proprietorship Vs One Person Company
Overall, a One Person Company offers more legal protection and has greater potential for growth and expansion than a sole proprietorship.
However, it also comes with greater compliance requirements and maintenance costs. Ultimately, the choice between a sole proprietorship and an OPC will depend on the specific needs and goals of the business owner.
The OPC is suitable for people who want to start a business with a corporate structure with full (sole) control over all the business operations.
If you are still confused and not able to choose the right form of business, feel free to reach out to us, and our experts at Bizindigo will help you in making the right decision.