The Companies Act, 2013 introduced the concept of One Person Company (OPC). It is a form of business with dual benefit. One is that the advantage of single ownership and therefore the other is that the corporate structure. One Person Company means a corporation with one member or one shareholder. OPC can be started with one director – which is not possible with a Private Limited Company or Public company. Yet, the incorporation process of OPC is analogous to the method of other company.
A Proprietorship firm means firm run single-handedly. it’s not a separate legal entity. Hence the proprietor is responsible for each decision. The proprietor is that the sole controller of the business. A proprietorship firm is registered in several ways as there’s no specific Act to register it. One person Company and Sole Proprietorship sounds almost like words. But in reality, both are different from each other. OPC and Sole Proprietorship in terms of law and workings are different.
Like proprietorship, which defines the owner and business as an one entity, OPC treats the owner and business as two distinct entities.
OPC needs Mandatory Registration with Ministry of Corporate Affairs (MCA).
However, Proprietorship Not mandatory however Sectoral licenses are required as may be applicable to a particular business.
The concept of one Person Company (OPC) allows a person to run a company that is limited by shares while a Sole Proprietorship means an entity which is run ,owned and managed by one individual and where there’s no distinction between the owner and therefore the business.
OPC must contain the words ‘OPC’ to distinguish it from other entities but Proprietor generally uses his own name.
For OPC, the liability is limited up to the paid-up share capital of the company. But for proprietorship, the liability is not limited up to the fund invested in the business. If needed, personal assets can also be used to repay the amount.
Memorandum and Articles of Association are the charter documents for an OPC. However, there is no such document in case of proprietorship firm.
Statutory Compliances in case of LLP are in addition to compliance under Income Tax Act, as the LLP Act mandates the same. These compliances ensure transparency of operations and financials of the entity.
There are not any additional compliances prescribed except laid down under tax Act.
OPC data are available on the MCA portal. The constitutional documents like MOA and AOA also are available within the property right.
One cannot find the data of the proprietorship firm anywhere.
In OPC there is a need for mandatory nomination of one person but there is no such criteria in case of proprietorship.
A OPC is registered as a private limited company, thus it is subjected to taxes accordingly. It continues to be taxed as a private limited company under the provisions of the Income Tax Act.
In a sole proprietorship firm, the income of the company is treated as income of the individual owning the proprietorship firm and the income will be added to the proprietor’s income. The proprietor is liable for tax as per the tax slab of an individual.
As OPC is governed by the Companies Act, the compliance’s are more as compared to proprietorship firm. But there’s less compliance as compared to other sorts of companies. However in proprietorship, 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.
The creditability of OPC is more due to its transparent business structure and data is definitely verifiable thanks to free access. Funds from banks and the financial institution can be raised easily. The creditability is very low in proprietorship firm. Creditability is dependent on the performance and experience of the proprietor.
A one person company should mandatorily convert itself into a personal Ltd. or a public Ltd. (as the case may be) if the typical annual turnover for 3 years exceeds the edge. This means the moment the average annual turnover of one Person Company exceeds INR 2 crore for the three consecutive years and if the paid-up share capital is over and above INR 50 lakh, one will need to convert it into a public or private Ltd.
A sole proprietorship firm can’t be converted into the other business structure. It shall remain the same irrespective of the revenues earned by it.
OPC is recommended for every entrepreneur who wants to do business in organized form and wants to take benefits of Corporate structure.
The proprietorship firm is recommended for that form of business where the nature of the business is simple with least to nominal financial risks involved.
Both Sole Proprietorship and OPC are forms of One Man Organizations however as evident from above distinction that incorporating an OPC offers several advantages over traditional proprietorship firms.
But every form of business has its own merits and shortcomings and it solely depends upon the intent of the entrepreneur like what are his objectives, the nature and size of the business.
In short we can say that these are tailored made decisions varying from person to person and business to business.