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5 Major Difference Between OPC And Sole Proprietorship Firm

December 14, 2021

 

A one-person company, or OPC, is a new concept in India that intends to alleviate the limits imposed by traditional business structures and allow the smooth establishment and operation of a new form of organization in India.

The contrasts between a one-person company and a sole proprietorship firm will be discussed here. Even though their name and meaning appear to be the same at first glance, they are fundamentally distinct.

 

Sole Proprietorship Firm

A sole proprietorship is a type of business in which the firm is registered in the name of a single person who is also the owner. He has the authority to start, operate, make all decisions, and dissolve the firm.

Operating a sole proprietorship is significantly easier than other entities because there are relatively few registration processes and compliances that must be filed by the owner.

To register a proprietorship firm, the owner must get certain certificates, upload additional papers, and complete an online registration form. And the registration is completed in a matter of days, allowing individuals to enjoy the benefits of proprietorship registration.

 

One Person Company

Although the name seems similar to the sole proprietorship, the OPC or one person company registration is not the same.

The notion of a one-person company is relatively new in India, having been adopted in 2013 by the Company’s Act. This type of business is run by a single person and combines the attributes of a corporate with the advantages of a sole proprietorship.

Previously, a single individual could not start a corporate form of business, and a sole proprietorship could not acquire the characteristics of a company. It is now possible to start a company with only one director and one member, which is a combination of the two.

The company’s member and director can be the same person.

A one-person company has the legal status of a separate legal entity, and the member’s obligations are restricted to his part of the business, and he is not personally liable for any losses incurred.

It is simple to raise funding through angel investors, venture capitalists, and incubators because it is a separate legal company. Furthermore, a one person company can simply obtain a loan and other types of funding.

When it comes to compliances, the Company Act of 2013 provides various exemptions for one-person businesses. The company secretary is not required to sign the books of accounts or annual returns under the statute, and they must be signed only by the director.

Again, as it requires only one person to start a one person company so it is easy to incorporate the company as only one member and one nominee are required. The member can be a director too.

Only having one person as the director and member in this type of company is very easy to manage due to the absence of any internal conflict also the decision-making is quick and easy.

Here one point is noteworthy that a person has to be appointed as the nominee by the director of the company so that after the death of the member the nominee will run the company in the member’s position.

Difference between One Person Company and Sole Proprietorship Firm

There are many differences between the two when it comes to other factors like liability, taxation, compliances to count a few.

 

1. Succession

They are different when it comes to succession as in sole proprietorship the succession can only take place through execution of the Last Testament and Will that can or can’t be challenged in a court of law.

Whereas in the one person company registration needs to have a nominee designated by its member. That nominee should be a natural-born citizen and resident of India.

 

2. Liability

In the sole proprietorship, the owner has an unlimited liability that means if the business incurs losses, then not only the assets of the company but also the owner may be asked to pay off his debt from his/her personal asset.

And in one person company as it is a separate legal entity so the owner has limited liability if the business incurs a loss.

 

3. Compliances

A sole proprietorship has to get its accounts audited under the provisions of the Section 44 AB of the Income Tax Act when the turnover exceeds the specified limit.

But in one person company, the owner has to file annual returns with other compliances of a private limited company with audited books of account.

 

4. Taxation

The taxation process for a sole proprietorship is different as the income of the firm is treated as the income of the individual who is the owner of the proprietorship and taxed accordingly.

Where one person company is taxed according to the private limited company having no different tax slab.

 

5. Conversion

When it comes to an increase in revenue or capital or voluntarily a one person company can be converted into a private or public limited company whereas sole proprietorship always remains the same irrespective of the revenue.

 

These are the distinctions between a sole proprietorship and a one-person company. Thus, keep all of these considerations in mind when deciding on a company model. Need more details connect with our professionals now, they will help you to take better decision to select right form of business structure according to your requirement.

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