One Person Company vs Proprietorship Firm
In this article, we will discuss one person company vs proprietorship firm in India.
What is One Person Company?
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 Director
- Then 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 purpose
- File various forms along with required documents and fees electronically i.e. Spice form
- Pay requisite fees and stamp duty wherever applicable
- Scrutiny of forms filed for purpose of incorporation at ROC
- Certificate of incorporation is issued by Registrar of Company
What is a Sole Proprietorship?
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 company
- Flexible 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 proprietor
- Less time consuming: The registration of such business is not a time-consuming It is very easy to register such business
- Relatively 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.
- 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.