In this article, we will discuss one person company vs proprietorship firm in India. What is One Person Company? Define: One Person Company as a company is defined as per Companies act 2013 under Section 2(62) (OPC) which has only one person as a member. Nature of Business: OPC has to be registered as a private company, thus all the provisions of a private company are applicable to OPC unless otherwise expressly excluded thereunder. OPC can be converted into Public or Private Company and vice versa if it fulfills certain criteria. The word One person Company must be mentioned along with the name of the company Who can incorporate OPC? A person who is resident of India i.e. the stayed in India during the immediately previous fiscal year must be for 182 days. However, the person who has formed OPC cannot be a member or nominee of other OPC. Features of OPC: OPC has a separate legal entity similar to that of any registered entity though it is managed by Individual.There is only one member and one director in an OPC.The member and nominee have to be the natural person who is an Indian Resident.Minor is not allowed to be a member or nominee of the One Person Company or hold a share with beneficial interest.Annual Compliance for One person Company can’t be incorporated or converted into a company of section 8 of the Companies Act, 2013 etc The process of Incorporation of OPC Obtain DSC of the proposed DirectorThen apply and obtain DIN number for the Director (DIR-3)Name application to ROC for the availability of name (INC-1)Draft MOA and AOA for incorporation purposeFile various forms along with required documents and fees electronically i.e. Spice formPay requisite fees and stamp duty wherever applicableScrutiny of forms filed for purpose of incorporation at ROCCertificate of incorporation is issued by Registrar of Company What is a Sole Proprietorship? Introduction: A sole proprietorship can be defined as an unregistered business unit that is controlled and managed by an Individual. The person has full authority & responsibility with respect to the business activities. Sole proprietorships are one of the most common forms of business in India. The whole responsibility for the management of the business lies with the proprietor. Thus proprietorship is not a distinct entity unto itself; rather business and its owner are clubbed together. In this type of Business, the person operating will only be the director and shareholder himself. What kind of nature of business suitable for Sole proprietorship business? The form of proprietorship business is preferably suited to businesses where the nature of the business is simple, financial risk is nominal or least, no need to take enormous debts and the product market is small. The Business with minimal capital requirements and little or almost no levels of risk are suitable for being run as sole proprietorships. Now, the proprietorship business may require registering itself under a business registration as well as tax registration such as GST Registration. What are the advantages of a sole proprietorship? Cost effective: as there is no formal registration needed, the cost of setting up such a business is low as compared to other companies or OPC companyFlexible business decision: In sole proprietor business the person operating such a business the whole and sole that controls it thus the decision-making process becomes quick and efficient and the decision were taken be taken within the timeframe.Sole control over finance: finance is a very crucial aspect of every business. So, quick and timely finance decision is undertaken by the person in such business helps to grab various opportunities.Business relations: it helps to build good relations with the customer and employees as such models are found in lines of work where close personal relations are maintained.Confidentiality: He is the only person who looks around the entire business so the business secrets are not leaked to outside another proprietorLess time consuming: The registration of such business is not a time-consuming It is very easy to register such businessRelatively inexpensive: It is inexpensive as compared to OPC. No need to hire an auditor. No need for a lot of employment. Other cost savings also there.Minimal statutory compliance: The statutory compliance such as annual fillings, other professional taxes, sales taxes are not there etc.Easy to close: Being a Sole Proprietorship Firm the winding up of business is an easy Not much formality is required only the tax registration obtained by the named proprietor must be canceled. Is it necessary to register a proprietorship firm? It is not compulsory to register such a kind of business. But for sake of clarity and giving surety to creditors, it becomes important to register a business. But now, in the case of GST, a proprietor can register itself to establish that he is operating as a sole proprietorship. Documents/Procedure required: Kind of registration required for such business and documents required for the same.After receipt of Documents, process the same by filing online with the concerned authority. For eg: GST application will be made after receipt of documents from the client.Lastly, on registration done, update the status of the same to the client. Difference between a Sole Proprietorship and One Person Company TYPE OF COMPANY BASIS Sole Proprietorship One Person Company (OPC) Registration Not Compulsory Can be registered under the provisions of MCA (Ministry of Corporate Affairs) and the Companies Act 2013 Legal status of the entity Not considered as a separate legal entity Considered as a Separate legal entity Members liability Unlimited liability Limited to the extent of share capital Minimum number of the members Sole Proprietorship Minimum number of 1 person Maximum number of the members Maximum 1 person Maximum 2 person Foreign ownership Not allowed Allowed if in case one is the director and the other is the nominee. Further, both the director and the nominee cannot be the foreign citizens Transferability Not allowed Allowed to 1 person only Survival comes to end on the death or the retirement of the member Existence is independent of the directors or nominee Taxation Taxed as an individual Tax rate is 30 per cent on the profits plus the cess and surcharge Annual filings Income tax returns with the registrar of the company (ROC) Filed with the registrar of the company Conclusion OPC (One Person Company) is different and distinct from the Sole Proprietorship in terms of the law applicable and the workings involved. One Person Company and the Sole Proprietorship although sounds similar to words but in actual are very different from each other. One Person Company is considered as the private company only and it also enjoys the status of having a separate legal entity with the benefit of limited liability. Further, One Person Company is a company which required only one person as its member. And it is at times treated like a private Company only. Every One Person Company must have to at least hold one board meeting of the Board of Directors in each half of the calendar year, and moreover the gap between the two board meetings must not be less than ninety days. Further, a sole proprietorship does not enjoy the status of a separate legal entity like a partnership firm or a corporation. The benefit to sole proprietors’ kind of entrepreneurs, that they are not required to enter into the board meetings and annual general meetings. Furthermore, the Returns are also signed under their name. They enjoy liberty and freedom because of flexible working hours. Also, the income and losses are taxed on the individual’s personal ITR (income tax return). Lastly, it simply refers to that person who owns his own business and is personally and solely responsible for its debts. See Our Recommendation: Advantages of One Person Company over other Company Types.