When one wants to own a business single-handedly then there are limited options as to the form of business. One can start by registering a Sole proprietorship firm or One Person Company. One cannot change the structure of business in a short span as and when required. So it is a major decision selecting the right structure of business right at the start. Here is the guide which helps to select the right form of business in case of single ownership.
One Person Company
The Companies Act, 2013 introduced the concept of One Person Company. It is a form of business with dual benefit. One is the benefit of single ownership and the other is the corporate structure. One Person Company means a company with a single member or a single shareholder. OPC can be started with 1 director – which is not possible with a Private or Public company. Yet, the incorporation process of OPC is similar to the process of other company.
Sole Proprietorship Firm
A Proprietorship firm means firm run single-handedly. It is not a separate legal entity. Hence the proprietor is liable for each decision. The proprietor is the sole controller of the business. A proprietorship firm is registered in different ways as there is no specific ACT to register it.
Given below are the differences between One Person Company and Sole Proprietorship
|One Person Company||Sole Proprietorship|
|Separate Legal Entity||OPC is a separate legal entity and it can sue & can be sued.||Proprietorship firm has no separate legal existence.|
|Liability of owner||The liability is limited up to the paid-up share capital of the company.||The liability is not limited up to the fund invested in the firm. If needed, personal assets can also be used to repay the amount.|
|Number of directors||Minimum 1 director is required and a maximum of 15 directors can be there in OPC.||There is no concept of a director in a proprietorship firm. The sole owner is the only person involved.|
|Succession||The nominee of the OPC will become the member in case of death of the member.||There is no perpetual succession. The firm will dissolve in case of death of the sole owner.|
|Registration||Registration of OPC is done with Registrar of companies. It is an online process managed by the Ministry of Corporate Affairs.||It can be registered under MSME, Shop & Establishment, GST, Professional Tax, IEC, etc. Because there is no specific Act for it.|
|Taxability||It is a company and the tax rates of companies are applicable to OPC.||As there is no separate existence the income will add to the income of proprietor. The proprietor is liable for tax as per the tax slab of an Individual.|
|Compliance||As it is governed by the Companies Act, the compliance’s are more as compared to proprietorship firm. But there is less compliance as compared to other types of companies.||There is no mandatory compliance other than filing an income tax return. However one has to comply with other Acts as applicable, such as GST.|
|Public Data||The data of the OPC are available on the MCA portal. The constitutional documents such as MOA and AOA are also available in the public domain.||One cannot find the data of the firm anywhere.|
|Creditability||The creditability of OPC is more due to its transparent business structure and data is easily verifiable due to free access. Funds from banks and the financial institution can be raised easily.||The creditability is very low in this type of firm. Creditability depends on the experience and performance of the proprietor.|
|Unique Name||OPC will have a unique name. It is different from any other entity. And any other person cannot use a similar name for its business. One can check it online through the MCA portal.||One can start firm with any name. It can create confusion for the customer if the names of firms are similar.|
|Constitutional documents||The Company will function according to its constitutional documents. The Memorandum of Association and Articles of Association are considered its constitutional documents.||It is managed single-handedly and not governed by any ACT so it will not require any such document.|
|Lock-in period||To convert OPC into a Private limited company or Public limited company, a minimum 2 years must pass except in specified case as given in Act.||No minimum lock-in period to convert a proprietorship firm to any other entity.|
The differences listed above between the two forms of businesses will help to select the correct form of business.
The concept of One Person Company is new in India. Hence it will take some time to gain acceptance amongst entrepreneurs. For a single owner, it is the best form of business with a corporate structure. OPC also has more compliances than a proprietorship firm. The nature of business can help to decide the structure of a business.