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Difference between Sole Proprietorship and One Person Company

A business in India can be structured as a sole proprietorship, partnership, one-person company, limited liability partnership, private limited company registration, or public limited company. But, the most confused is the difference between sole proprietorship and one person company.

When choosing a company structure, one must be aware of the many types of business structures, advantages and disadvantages, public acceptance, difference and impression.

One Person Company (OPC) permits a single person to run a company limited by shares. Whereas a Sole Proprietorship is a firm run and owned by a single person with no distinction between the owner and the business.

Sole Proprietorship

Individuals who are directly liable for debts engage in the simplest sort of business. A sole proprietorship, unlike a partnership or a corporation, is not a legal entity. As a result, a sole proprietor might launch a firm using his name or a false name.

The costs of starting this type of business are low, but the downside is the risk of financial failure. If the business does not make a profit, creditors have the right to sue the sole proprietor. His assets can be used to discharge his business debt.

If the owner dies, however, there are slim possibilities of survival. After a certain point, business expansion becomes a difficult task.

These type of entrepreneurs has the advantage of not having to attend board meetings or yearly meetings. Their signature appears on the returns. They work on a flexible schedule.

Primary Features of a Sole Proprietorship

The simplest sort of business is the sole proprietorship, which is started by individuals who are directly liable for debts. Furthermore, unlike a partnership or a corporation, a sole proprietorship is not a legal entity.

A lone proprietor, on the other hand, might register his business using his name or a fictional name. Furthermore, the startup fees for this type of business are low.

The disadvantage, on the other hand, is in the event of a financial disaster. If the business does not make a profit, creditors may initiate a lawsuit against the sole proprietor. His assets may be subject to business responsibility.

One person company (OPC)

The Companies Act of 2013 created a new type of business, a hybrid of a sole proprietorship and a corporation, by allowing sole owners to enter the corporate realm.

It considers as if it were a private firm, with its legal entity and limited responsibility. Every one-person firm must hold at least one Board of Directors meeting in each half of the calendar year, with a minimum gap of ninety days between the two meetings.

Primary Features of a One Person Company

The Companies Act of 2013 created a new type of business that was a cross between a sole proprietorship and a corporation.

Furthermore, by allowing sole entrepreneurs to work in a corporate setting.

It is treated as a private limited business with limited liability and a separate legal entity. Furthermore, One Person Company Registration, which is a relatively new concept in India, has already witnessed a significant increase in popularity.

One person companies are making a significant contribution to India’s overall economic growth.

It is projected to have a significant impact on the nation’s economy and growth. It provides possibilities to many people, bringing innovative and young brains to the forefront of society.

One Person Company Vs Sole Proprietorship

Registration

While it is necessary to obtain registration while beginning a business, it is not mandatory in the case of a sole proprietorship.

On the other hand, registration is an essential component of the One Person Company, and the process is extensive.

One Person Company must register with the Registrar of Companies, and the firm’s director must complete the following tasks:

  • Obtain DIN and DSC numbers.
  • Obtain approval for the name
  • Articles of Association and Memorandum of Association Draft
  • File a Certificate of Incorporation with the RoC.
  • Complete all post-incorporation requirements.

Unlimited Liability

A sole proprietorship has “unlimited liability,” which means that if the company loses money, the assets of both the company and the owner can be used to pay off the debt.

An OPC, on the other hand, is a separate legal entity with limited liability for the owner in the event of a loss.

Taxation

An OPC registers as a Private Limited Company, it is liable to the appropriate taxes. An OPC does not have its tax bracket; instead, it taxes by the rules of the Income Tax Act for a Pvt. Ltd. company.

For a sole proprietorship, the taxation process is different because the company’s income is the same as the owner’s income, and taxes appropriately.

Succession

An OPC must have a nominee named by its member for succession purposes. The nominee must also be an Indian citizen by birth and a permanent resident.

In the case that a member dies, the nominee automatically becomes a member of the corporation and is responsible for its management.

However, in the case of a sole proprietorship, succession is only possible through the execution of the Last Testament, which may or may not be challenged in a court of law.

Compliance

One Person Company must submit Annual Returns and comply with all other requirements of a Private Limited Company, as well as have its accounts audited.

A sole proprietorship, on the other hand, will only need to have its books audited if its turnover exceeds the specified threshold, as defined under Section 44 AB of the Income Tax Act.

Conversion

After three years of the average turnover of over Rs. 2 crores or a paid-up share capital of over Rs. 50 lakh, a one-person firm must change into a private or public limited company.

A sole proprietorship, on the other hand, can continue to exist regardless of revenue.

Conclusion

In terms of law and operation, an OPC differs from a sole proprietorship. The words “one person company” and “sole proprietorship” sound similar. OPC considers as if it were a private firm, with its legal entity and limited liability.

A “One Person Company” is a business that has only one member. Moreover, it is treated as a private company.

Every one-person firm must hold at least one Board of Directors meeting in each half of the calendar year, with a minimum gap of ninety days between the two meetings.

A sole proprietorship, unlike a partnership or a corporation, is not a legal entity.

Same process can be applicable if you go for company registration in Mumbai or any other city.

The benefit to sole proprietors is that they do not have to attend board meetings or annual meetings. Their signature appears on the returns.

They work on a flexible schedule. Individuals must file a personal income tax return to report their earnings and losses. It simply refers to the owner of a company who is personally liable for its debts.

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