When you are about to kick-off a new business alone,
but confused among different choices which are available, one always thinks
what is better, so here you will get all difference between One Person Company
and Sole Proprietorship.
Read the article below to find about One Person
Company vs Sole Proprietorship and what you can do in that situation. We bring
you major differences in both types of businesses so as to make it easy for you
to decide what to choose between the two of them. Here are some advantages and
disadvantages of Sole Proprietorship and One Person Company (OPC) and examples
of when they’re commonly used by business owners.
What is sole
The word ‘sole’ stands for single and ‘proprietorship’
signifies ownership. Sole proprietorship is accepted as one of the most common,
simplest and oldest form of business entity. It is controlled and owned by one
person only and the person running it is known by the name of ‘sole proprietor’
or a ‘sole trader’.
A sole proprietorship is an unregistered business with
a sole owner who pays personal income tax on profits earned from the business.
It is the easiest form of business with very less government regulation,
forming sole proprietorships is popular among individuals, self-contractors,
consultants, small business owners etc.
A sole proprietorship has no difference between the
business entity and its owner, i.e., the owner of the business is also known as
sole proprietor. It is therefore very
different from limited partnerships and corporations, as there is no creation
of separate legal entity. As a result, the owner of a sole proprietorship has
unlimited liability acquire by the entity. For instance, the creditors of the
sole proprietorship are also the creditors of the owner.
However, sole proprietorship has an added advantage too,
that is all profits flow directly to the owner of a sole proprietorship.
What is a One
One Person Company is a mixture of Sole-Proprietorship
and Company form of business. The Companies Act, 2013 introduced the new
concept of One Person Company, thereby enabling a Person who is carrying on the
business in the Sole-Proprietorship firm to enter into a corporate outline with
concessional requirements under the Act.
In the former Companies Act 1956 a minimum of two
shareholders and directors were required to form a private limited company. However,
with the Companies Act 2013, as per Section 2(62), a company can be formed with
just 1 Director and 1 member. OPC is a form of a company where the compliance
requirements are lesser than that of a private company.
The concept brought in absurd prospects for sole
proprietors and individual entrepreneurs who can take the advantages of Limited
liability and corporation.
Which one to
select between Sole Proprietorship and One Person Company?
Check out the difference between Sole Proprietorship
and OPC given below and decide!
While starting any business you need to get
certification but in case of sole proprietorship the formal registration is not
a prerequisite. However, in case of the One Person Company, Registration is an
important aspect and the process for the same is lengthy. A One Person Company
should have to be registered with the Registrar of Companies and requires the
following things to be done by the Director of the company:
(a) Obtain DIN
(b) Get the
(c) Articles of
Association and Draft Memorandum of Association
(d) Apply for
Incorporation with the RoC and
Sole proprietorship needs separate legal identity
unlike a partnership firm or corporation. A sole proprietorship is a limited
business structure that connects the business and the business owner. From a
tax and legal viewpoint, the two are indistinguishable. One Person Company on
the other hand is a business that has the advantage of a corporate status in
society, this helps in drawing high-quality employees. The presence of OPC is not affected by the
death or incapacity of member.
Limited liability protection to directors and shareholders:
A sole proprietorship’s liability is unlimited that
is, all the assets of the individual will be attached and there is no
limitation on the liability. Liability extends to his personal belongings as
well. As a One Person Company is a separate legal entity, hence the owner has a
limited liability, in case the business suffers a loss. This is the most
attractive reason why many individuals are opting for an OPC.
In Proprietorship, Tax liability of Proprietorship
firm is carried by the Proprietor whereas for OPC, tax liability of the company
and single member is independent.
In the case of sole proprietorship, sequence takes
place through an execution of a Will. In a One Person Company, appointee
designated by its member, who shall, in the event of the death of the member,
become a member of the company and shall be responsible for the running of the
In a sole proprietorship, the owner only wants to case
the annual returns. While a One Person Company has to register annual returns,
get its accounts audited and meet other compliances of a Private Limited Company.
Conversion of Sole Proprietorship to Private Limited
Company is a dull process as compared to conversion of OPC to Private Limited
Company. OPC has to convert itself into Private Limited Company if its Paid-up
share capital exceeds Rs.50 Lakhs and if it’s average turnover of any three
consecutive financial years exceeds Rs.2 Crores.
As the one person company gets registered under the
New Companies Act and gets the registration certificate, it automatically
creates brand value which a sole proprietorship lacks.
As there is no difference between the owner and
business in sole proprietorship therefore any creditor of the proprietorship
can also claim on all the assets of the owner. However, in One Person Company
there is an added benefit as a company has a separate legal entity. Any equity
purchased by OPC will be the asset of that OPC. The member does not have an
insurable activity in the property of the company.