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In this article, we will discuss one person company vs proprietorship firm in India.
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.
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
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.
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.
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.
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.
|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|
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.