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OPC and Sole Proprietorship are two different business structures. OPC is governed by Companies Act governed by two different acts namely Companies Act and Shop and Establishment Act respectively. The concept of One Person Company encourages single and enthusiastic entrepreneurs to operate own venture. However, a Sole proprietorship is a form of business in which one person owns all the assets of the business, in contrast to partnership or corporations.

Working as a Sole Proprietor grants you the autonomy and faster business decisions because you are not answerable to any third person. You are your own boss and can even hire assistants for delegation of work. But Despite the fact there are certain inherent limitations of working as a Sole Owner for instance :

  1. Unlimited Liability
  2. Lower Brand Value
  3. Problem of funding from Banks and financial institutions and many more.
OPC vs. Sole Proprietorship

Therefore to overcome these shortcomings of a traditional form of sole entity form of business structure the Government of India has introduced a New Form of Business structure titled 'ONE PERSON COMPANY 'more popularly known as OPC with bringing of Companies Act, 2013. The intent of the government is to bring the traditional small proprietors who are currently working in un-organized sectors in an organized form of business to enhance Corporate governance and inculcate a habit of formal business structure.

'OPC' provides the benefits of limited liability, brand image, access to banks funding and at the same time retaining the basic feature of 'ONE MAN SHOW' because in OPC there is only one person who controls the company and can hire directors and employees for efficient management.

Do you want to start a new business but have confusion as to what structure of business you should choose? If you as an existing or aspiring entrepreneur would like to decide whether to switch to 'OPC' structure or not then this article will surely guide you the path.

Sr.No

Points of Discussion

Sole Proprietorship

One Person Company

1.

Regulation

General

Specific – Companies Act, 2013

2.

Type of Structure

Plain Vanilla

Hybrid (Proprietorship + Company)

3.

Business Registration

Not mandatory however Sectoral licenses are required as may be applicable to a particular business. Eg.GST, ShopAct etc.

Mandatory Registration with MCA

4.

Name

Generally Proprietor uses his own name

Must Contain word 'OPC' to distinguish itself from other entities.

5.

Liability

Unlimited

Limited

6.

Nomination

Optional

Mandatory nomination of 1 natural person to form an OPC.

7.

Directors

Not Applicable

Minimum=1
Maximum= 15 unless increased

8.

Management

Proprietor is the whole and sole person who manages the firm however he may also hire employees to support.

Directors Collectively referred as 'Board of Directors'

9.

Bank Funding

Very rare chances

Possible and higher chances than Proprietorship

10.

ROC Compliances

Not Applicable

Applicable but less as compared to a pure Pvt Ltd or Public Company (i.e big companies)

11.

Income Tax Compliance

Taxable at slab rates as applicable to Individual and HUF

Taxable @22%+Surcharge and education cess

12.

Transparency

Very rare

Yes due to regular disclosures with regulatory authorities

13.

Liquidation

On the death of a proprietor

Only through Legal Process

14.

Recommended For

Unorganized Sector

For every entrepreneur who wants to do business in organized form and wants to take benefits of Corporate structure

 
 

Conclusion

One Person Company and sole proprietorship has a lot of similarities yet they both are different in many of its characteristics and structures. If you are one person who wants to start a business One Person Company is definitely for you as the concept of One Person Company (OPC) was introduced with an objective to encourage single and enthusiastic entrepreneurs to operate own venture. And in case of a sole proprietorship, it is an unincorporated business with only one owner who pays personal income tax on profits earned.

The author can also be reached at Tripathi.r.suyash@gmail.com


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Category Corporate Law, Other Articles by - Suyash Tripathi 



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