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One Person Company v/s Partnership Firm

Narendra Kumar

| Updated: Jan 05, 2018 | Category: Company Registration

One Person Company vs Partnership Firm

OPCs are a separate legal entity similar to that of any registered corporate in spite of its run by individuals. In this article, we will discuss One Person Company vs Partnership Firm Registration.

Definition of One Person Company?

As per Companies act 2013. Section 2(62)(OPC) One Person Company as a company which has only one person as a member.

Nature of Business:

One person company  can be only registered as a private company; thus all the provisions of a private company are applicable to OPC unless otherwise expressly excluded in the Act or rules made thereunder

OPC can be converted into Public or Private Company and vice versa in certain cases.

The word ‘One person Company’ must be mentioned below the name of the company where ever applicable.

Who can Incorporate OPC?

A person who is resident in India i.e. he has stayed in India for 182 days during the immediately previous financial year. However, one such person can’t form more than one OPC or become the nominee of more than one for such a company

Features of OPC (One Person Company):

  • Personality determined passion and execution of a business plan.
  • The desire of the entrepreneurial person to take additional risk and willingness to take additional responsibility.
  • Personal assurance to the business which is an only idea of the person close to his heart.
  • It must have only one member and have only one director.
  • The member and nominee should be the natural person who is Indian Citizens plus resident in India.
  • Minor shall not become member nor become the nominee of the One-Person Company or hold a share with beneficial interest.
  • One person Company can’t be incorporated or changed into a company of section 8 of the Companies Act, 2013etc

Restriction on the Incorporation of OPC:

Conversion or incorporation of OPC into section 8 company is not possible. It cannot carry out a non-banking activity, including investment in securities of anybody corporate

How many types of OPC can be incorporated under the Act?

  • A company limited by shares or;
  • A company limited by guarantee or;
  • An unlimited company

Privileges Available to OPC

They are as follows:

  • OPC provides new business ideas to the new start-up business
  • The most important advantage is the limited liability which attracts many people to start up OPC
  • OPC need not bother too much about compliance unlike Companies
  • OPC requires minimal capital, to begin with. It can also raise capital from others like venture capital, other financial institution, etc
  • Compulsory rotation of auditor so appointed after the maximum term is not applicable

Partnership

What is a Partnership?

A relation of  General Partnership arises from contact and not from status. It is a business organization in which two or more individuals operate a business in accordance with the terms and objectives set out in the Agreement/deed commonly known as Partnership Deed. This structure is said to be the base for the introduction of the Limited Liability Partnership (LLP). The low costs, ease of setting up and minimal compliance requirements make it a sensible option for some, such as home businesses that are unlikely to take on any debt. Registration is optional for General Partnerships. The partnership is governed by the Partnership Act 1932.

Crucial Facts on Partnership Firm

What is a partnership firm?

A partnership business is a legal relationship formed by the agreement between two or more individuals to carry business as co-owners. A partnership is a business with many owners or more than one owners and each one have invested in the business. Some partnerships include individuals who work in the business, while others may include partners who have limited participation and also a limited liability.

They function a business in accordance with the terms, conditions and objectives set out in a Partnership Deed that may or may not be registered. In Partnership Firm, the members are individually partners and share the liabilities as well as profits of the firm in a predetermined ratio.

What are different kinds of Partnerships in India?

Short Brief of a different kind of partnership are as follows:

You need to keep in mind that which type of partnership you want to start before you actually want to start with it. You may have heard the terms:

  • general partnership consists of partners who take part in the day-to-day procedures/activity of the partnership is who have liability as owners. There may also be limited partners. It may be further divided into
    • Partnership at will
    • Particular Partnership
  • A limited partnership has one general partner who manages the business and one or more limited partners who do not take part in the day to day operations of the partnership and who do not have liability.
  • A Limited Liability Partnership is similar to the limited partnership, but it may have several general partners.

Some Essential Elements of Partnership Firm

  1. Contract for Partnership
  2. Carrying on Business in a Partnership
  3. Sharing Profit
  4. Mutual Agency in Partnership
  5. Inexpensive

Reason to Set up Partnership Firm?

A partnership firm is best for those who want to set up small businesses and plan to remain small. As it involves Low costs, ease of setting up and minimal compliance requirements thus to opt for such a business is the correct decision.

Is a Partnership Firm a Separate Entity?

To define: “Partnership” is the relation between persons who have agreed to share the profits and losses of a business carried on by all or any of them acting for all.

In such a partnership firm all the persons who have entered into are individually are called partners and collectively known as Firm. But a Partnership firm does not have a separate legal personality.

Number of Partners?

Minimum2
Maximum;

 

In Case of Banking

10
Maximum;

 

In Case of other Business

20

Note: The partners in the Partnership firm can divide profits and losses equally or unequally.

Partner to Be Agent Of The Firm. (Section18)

The partner acts as the agent of the firm for the purpose of business; subject to the provisions of the Act.

Is a Partnership Firm Registration Necessary?

Registration of Partnership is not necessary. If any partner wants to sue another partner for the Acts done by him in the near future then it has to be registered. Moreover, for the partnership to bring any suit to court, the firm should be registered. Thus it is always advisable for such a crucial reason to register the Partnership.

What is the Essence of a Partnership Deed?

It is considered the most important document of the partnership, which comprises the terms and conditions relating to the partnership and the guidelines governing its internal management and organization

The deed can be in oral or written form. It is usually a written agreement between the partners of the firm that is used to address the eventuality that the partner will need to be bought out. It tells you the nature of Business. It includes in it, the Profit/Loss sharing ratio among the partners; Rights Duties and obligations of all the partners; duration of the partnership; the rate of interest charged on share capital; Maximum Amount for drawing on each Partner and Interest charged open it, etc.

Difference between One Person Company and Partnership

Below table shows the comparison of two ideal entities for most entrepreneurs:

Particulars One Person Company Partnership
Governing Body One Person Company (OPC) is governed and regulated by the Companies Act, 2013. Partnership firm is governed and regulated by the Indian Partnership Act, 1932.
Registration Registration of an OPC is compulsory and obligatory with the MCA (Ministry of Corporate Affairs) as per the provisions mentionedunder the Companies Act, 2013. Partnership firm may or may not be registered, it is fully optional to get a partnership firm registered
Name Approval The name of the One Person Company (OPC) needs to get approved from the MCA (Ministry of Corporate Affairs) and ‘OPC’ word must be mention as suffix with the name of the company. There is no as such prescribed requirement to take any prior name approval from the ROF(registrar of firms) in case of a partnership.
Legal Separate Entity One Person Company (OPC)enjoys the status of a separate legal entity, which means distinct from its member. Hence, the all the personal assets of the member’s are not liable for any loss incurred by the business. Partnership and all its partners are recognised as a single entityand there is no concept of a separate legal entity. Thus, partners are fully responsiblefor the liabilities concerning to the partnership.
Liability The sole owner enjoys the benefit of limited liability to the extent of the share capital or the value of shares in the company. In case of a partnership firm, partners suffer with the disadvantage of unlimited liability which means that the liability may extend to the personal assets of the partners.
Number of members Only one member is needed to formulate One Person Company who necessarily has to be a resident of India. Minimum-2 members Maximum- 20 members
Common seal In case of an OPC, two rubber stamps are needed in order to prepare one with the name of the company and other with the designated person. In case of a partnership, there is no compliance or requirement concerning common seal.
DIN (Director Identification Number) In case of an OPC, every director is mandatorily needed to obtain DIN (Director Identification Number). No partner of a partnership firm is required to get DIN (Director Identification Number).
DSC (Digital Signature Certificate) For filing the e-forms online with MCA (Ministry of Corporate Affairs), the sole owner is mandatorily required to obtain digital signature certificate. In case of a partnership firm, there is no as such requirementfor obtaining digital signature certificate by any designated partner.
Statutory Auditing Statutory Auditing is compulsory and mandatory within the prescribed time period and as per provisions mentioned under the Companies Act, 2013. Except in the case of tax auditing, there are no as such provisions regarding accounts auditing.
Annual Filing of the Financial Statements Filing of the financial statements and annual return is compulsory and mandatory in the case of a One Person Company. In the case of a Partnership firm, the partners concerned are not required to file any annual return of the concerned partnership.
Admission of a minor In the case of a One Person Company minors cannot be appointed as a director, nominee, sole shareholder. In the case of a partnership firm, minors can be admitted as partners but only for the benefit of the firm.
Tax on the profit distributed In the case of a One Person Company, the sole owner is required to pay the dividend distribution tax on the dividend. In the case of a Partnership Firm, there is no need as such requirement to pay any kind of tax on the profit distributed among the partners.
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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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