One Person Company Vs Proprietorships (Individual businesses)

One Person Company Introduction:

OPC i.e. ‘one person company’ is a step towards ease of doing business in india. The concept of OPC is new in India. But it is a very successful form of business in UK and several European Countries. An OPC is a hybrid structure. It combines most of the benefits of a sole proprietorship and a company from of business. And it also does away with the hassles of finding a co-partner/s for starting a business. Before the introduction of an OPC, starting a company required atleast 2 members. That is 2 directors and 2 shareholders at minimum. So for the person wanting to venture alone, the only option was proprietorship. However, an OPC is a single person business. It can have just one shareholder and one director. And a single person can be both!

Sole Proprietorship Introduction:

A Sole Proprietor the name suggests. Its a small business owned by a single individual. The owner is called a proprietor. Also called as solopreneur sometimes. An individual starts as soon as the bank account opens.
Proprietorship is the go to business structure for small businesses. It has the minimum number of compliance. Also, it is the fastest and easiest to start. Although it is not recommend for medium and large sized businesses. A sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. A sole proprietorship can operate under the name of its owner or it can do business under a Trade name.

Difference between a one person Company (OPC) and a Sole Proprietorship

One Person Company Vs Proprietorships:

1	Type of Members
	A minor certainly cannot become a member of an OPC. In any case, an OPC needs to have a nominee.	A minor can start a business as a proprietor. Although with a few conditions.
2	Nominee
	An OPC needs to have a nominee. A person who cannot be a member of an OPC also cannot be nominee. A nominee for OPC has to be a natural person who is an Indian citizen and resident in India. A single person cannot become a nominee in more than one OPC.	A Proprietor may or may not have a nominee. This too would probably require a will.
3	Succession
	In contrast to a proprietor, an OPC does have perpetual succession. The Nominee becomes the member in the following situations: 1.      In the event of the sole member’s death; or 2.      Also, in the event of the sole member becoming incapacitated to contract.	A proprietorship does not have perpetual existence. So the businesses ceases to exist on the death of the proprietor.
4	Restrictions
	A single person cannot become a nominee in more than one OPC. The words “one person company” should surely be mentioned in the name. Above all, maximum turnover allowed is Rs. 2 Crore and Capital 50 Lakh.	There are certainly no similar restrictions for a proprietor. No naming restrictions for a proprietor. There are no turnover/capital limits for a proprietor. Although after a certain scale, other business structures would be more suitable.
5	Conversion
	On reaching a turnover of Rs. 2 Crore, we have to convert an OPC. So it is converted into a regular Private Limited Company. Also, the same applies if the share capital exceeds Rs. 50 Lakh.	There is no requirement of compulsory conversion of a proprietor into any other form/structure. Although larger scale may require another structure.
6	Number of businesses
	An individual cannot open more than 1 OPC	An individual can open any number of proprietorship firms.
7	Compliance
	Relatively more compliance compared to a proprietor. Requires mandatory audit. Also mandatory ROC returns and KYC.	Least compliance. So when compared to other business structures, this has least compliance. It is also the easiest to start. Though scaling is an issue.
8	Taxes
	Presently, the income tax act does not differentiate between a regular company and a OPC. Thus taxation of income of both the entities is at the same rate as per the provisions of Income Tax Act. So every Rupee of profit earned is taxed at anywhere from 25 to 30%.	More beneficial for small businesses. Proprietors take the benefit of slab rate applicable to individuals. So small businesses may not even pay taxes for smaller levels of operations.
9	Liability/Legality
	The members of both an OPC have limited liability. Though upto the extent of the value of their shares. Further, an OPC is a separate legal entity from its member. That is the personal assets of the shareholders are not liable for any loss incurred by the business.	The same cannot be said for a proprietor. In the eyes of the law, the proprietor and the individual is one and the same. So there is an unlimited liability.

 

 

Similarities between a One Person Company (OPC) and a Sole Proprietorship