A Comparative Analysis Of One Person Company And Sole Proprietorship

Coverage of this Article

Key takeaways

-Section 2 (62) of the Companies Act, 2013 defines a one-person company as a company that has only one person as to its member.

One Person Company

-Section 2 (62) of the Companies Act, 2013 defines a one-person company as a company that has only one person as to its member.

Sole proprietorship

-A business that is owned and run by one person is known as a sole proprietorship.

Differences between Sole Proprietorship and OPC

-The company's registration is optional in a sole proprietorship. Additionally, if an owner wishes to register his business, he can do so.

Conclusion

-Despite having a similar name and scope, sole proprietor and OPC are two distinct legal and operational entities.

Key takeaways

• Section 2 (62) of the Companies Act, 2013 defines a one-person company as a company that has only one person as to its member.
• A business that is owned and run by one person is known as a sole proprietorship. Proprietorships are recognised by other registrations, such as a Service Tax registration, GST registration, etc but not company law, partnership act and LLP law.
• A sole-proprietorship is not regarded as a distinct legal entity. A One Person Company, on the other hand, is a distinct legal entity.

One Person Company

Section 2 (62) of the Companies Act, 2013 defines a one-person company as a company that has only one person as to its member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders.

In order for an One Person Company to operate, only one individual must serve on the board of directors. In some cases, we observe that SMEs and startups lack initial investors and sponsors. Therefore, registering under an OPC legislation is the most practical choice for new concepts.

The Companies Act of 2013 created a new business structure that combined sole proprietorship and company elements. Furthermore, by giving lone entrepreneurs a chance to enter the corporate sector. It is regarded as a private limited corporation since it has limited liability and a separate legal entity. Additionally, One Person Company Registration, a novel idea in India, has already experienced a significant upsurge. One-person businesses have a significant positive impact on India's entire economy. On the nation's economy and development, a significant influence is anticipated. It provides possibilities to many and will, as a result, showcase youthful, creative minds for everyone.

Sole proprietorship

A business that is owned and run by one person is known as a sole proprietorship. Proprietorships are recognised by other registrations, such as a Service Tax registration, GST registration, MSME registration, or Shop and Establishment Act. There is no such thing as registration with any statute Law like Company Law, LLP Law, Partnership Act, etc.

The simplest legal structure under which a company can be run is a sole proprietorship. An unincorporated business is not a legal entity. But it simply means the owner of the company, who is liable for all debts incurred by it.

The simplest sort of business is a sole proprietorship, which is started by an individual who is responsible for all debts. Additionally, unlike a partnership or a corporation, a single proprietorship is not a legal entity. A lone proprietor can, however, submit an application for company registration in his or a fictitious name. Furthermore, starting a business of this nature doesn't cost much. The drawback, though, comes when there is a financial collapse. Creditors have the right to sue a lone proprietor if the company is unable to turn a profit. His personal assets may be at risk due to business responsibility. However, the entity has a slim possibility of surviving if the owner passes away. After a certain point, business expansion becomes challenging.

Another benefit is that these business owners do not have to hold annual and board meetings. Returns are also signed in their name, and their working hours are flexible. A sole proprietorship and a one-person company are therefore extremely distinct from one another.

Differences between Sole Proprietorship and OPC

Method of Registration

The company's registration is optional in a sole proprietorship. Additionally, if an owner wishes to register his business, he can do so.

In the instance of a One Person Company, a business may register with the MCA in accordance with the 2013 Companies Act.

Legal status

A sole-proprietorship is not regarded as a distinct legal entity. A One Person Company, on the other hand, is a distinct legal entity.

Name

An individual who is a sole proprietor typically uses his own name. To set a One Person Company apart from other entities, it must, nevertheless, include the word "OPC."

Management

A Sole proprietor is the solitary and whole person in charge of running a business, albeit he may also recruit staff to assist.

The board of directors of a one-person company is the term used to refer to all the directors.

Liability

A sole proprietor is totally liable. The liability of a one-person company, however, is constrained to the amount of share capital.

The minimum count of members

There is just one proprietor in a sole-proprietorship.

The one individual is essential when it comes to One Person Company.

The maximum number of members

In a sole proprietorship, only one person is permitted.

Two persons at most could be employed by a one-person company.

Foreign ownership

Foreign ownership is not permitted in a sole proprietorship, but it is permitted in a one-person company if one person is the director and the other the nominee. However, neither the nominee nor the director may be a foreign national.

Transferability

Transfer ability is not permitted under a sole-proprietorship.

Only one individual is permitted to transfer in a one-person company.

Existence of entity

When the only member of a sole-proprietorship dies or retires, the sole-proprietorship is dissolved.

However, a One Person Company's existence is unrelated to its board of directors or nominee.

Taxation

A proprietorship is subject to individual taxation.

However, the tax rate for One Person Companies is 30% on profits plus cess and surcharge.

Annual filings

A sole-proprietorship business must file income tax returns with the company's registrar (ROC).

Additionally, A-One Person Company submits its returns with the company's registrar.

Conclusion

Despite having a similar name and scope, sole proprietor and OPC are two distinct legal and operational entities. Working as a sole proprietor gives one the freedom to make decisions on your own without having to answer to anybody else.

A sole proprietor is not eligible for any of the rights enjoyed by an OPC since it is recognised as a private corporation with limited liability and a separate legal identity. Every company, i.e. one that has been registered as an OPC, is treated as a private corporation, and going forward, it is required to hold one Board of Director's meeting and two meetings that are not less than 90 days apart. Sole proprietors are excluded from this need. In both situations, it gives the individual the freedom to set their own working hours and holds them accountable for every action they do.

One Man Organizations can take the forms of OPC and Sole Proprietorship. However, it is clear from the differences mentioned above that incorporation of an OPC provides a number of benefits over single proprietorship businesses.