Table of Contents
OPC Vs Proprietor
So why a One Person Company Vs Proprietorships? Well because both are the quite similar. And perhaps the first choice for small businesses.
In this article we discuss One Person Company Vs Proprietorships. We dive into the basics and features of an one person company and proprietorships. Further we talk about the differences and similarities between the two as well.
Both these types of structures are suitable for small businesses. As small businesses might have a trouble in choosing between the two. So we’ve tried to highlight their features and differences in this article.
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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 |
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| 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
| Sr No. | Particulars |
| 1 |
Scale of Business |
| Both are suited for smaller scale of business. And not open to foreign Nationals. Most suitable for MSMEs. | |
| 2 |
No FDI/Foreign Investments |
| Both cannot take FDI. And foreign direct investments. | |
| 3 |
Number of Members |
| So a single individual can open an OPC. And that individual becomes the shareholder and the director. Similarly, in proprietorships, the one individual is the proprietor; the owner. |
Summary
One Person Company Vs Proprietorships. A One Person Company sure has lots to offer to small businesses. Not needing huge capital to get the a company started. The advantage of limited liability and separate legal existence. Although even proprietorships have a lot to offer. With the fastest setup times, it does offer convenience. Its simplicity and freedom also attracts a lot of young entrepreneurs. However, If you need foreign investments or are a foreign investor than a both may not work. And a private limited company would be your only option. Also even for medium and large sized businesses, an OPC or a sole proprietorship would not work. This choice would ultimately depend on the type of business and the scale.
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