As an entrepreneur, understanding the difference between a Proprietorship firm and one person company (OPC) is very important to make the right decision in order to match your goal, financial needs and legal requirements.
These both allow a single person to operate the business entirely, but they have different legal structures and requirements.
We are here to make things easy for you by explaining the key difference between one person company and sole proprietorship so you can make the right decision by selecting the right structure as per your business goals.
What is One Person Company (OPC):
An One Person Company (OPC) is a type of business that is owned and managed by a single person but recognized as a separate legal entity.
It provides a limited liability option that protects owner assets from business losses. The owner has the full authority to make any type of decision and can make changes according to them, but it must have a nominee, who can take charge if the owner is unable to operate the company by himself.
It combines the simplicity of a sole proprietorship firm with the legal benefits of a private limited company under the companies ACT 2013.
Advantages:
- Limited Liability
- Credibility
- Full Control
What is Proprietorship Firm:
A sole proprietorship firm is also owned and managed by a single person. It is the simplest and easiest form of business to start with.
In this also the owner has full control over the company to make any type of decision and operation according to his/her needs.
However, in this the over has the unlimited liability means, owners personal assets can be used to pay the company debts if the business face losses. It is not a separate legal entity, as the owner and business are considered the same.
Advantages:
- Easy formation
- Full control
- Low costing
- Simple tax filling
OPC vs Proprietorship In India: 5 Major Differences
Here are 5 key differences between Proprietorship and OPC (One Person Company) as follows:
Legal Identity:
In Sole Proprietorship, for all purposes of law, the business and the owner are one and the same person. It means that the business is having no separate legal identity-simply existing as long as the owner.
Yes, an OPC has its treatment as an independent legal entity. Such an ENTITY would have its identity; it can own property; enter into a contract; and sue or be sued aside from the owner.
Liability:
In a Sole Proprietorship, the assets of the owner can be sold in order to pay off business debts as liability is unlimited. The owner is wholly liable for all losses in the event that the business fails.
In the case of an OPC, liability is limited to the funds invested in the company by the owner. Hence, in the event of losses or debts of the company, the owner is protected from having his or her private assets attached.
Registration and Compliance
Starting a Sole Proprietorship is the easiest way to commence a business with minimum paperwork. One only needs the basic registrations: such as GST, UDYAM, or local business licenses depending upon the nature of work.
OPC needs to be registered under the Companies Act, 2013. It requires many steps and formalities such as drafting required legal documents, adding a nominee, filling annual returns and much more.
Continuity and Existence
A Sole Proprietorship comes to an end on the death, retirement, or incapacity of the owner to manage it; the business does not take on any life independent of the owner.
An OPC, on the other hand, will continue even after the owner. A nominee (appointed at registration) takes over the business; thus, business continuity is ensured.
Taxation and Growth Potential
Profits in Sole Proprietorship are taxed as part of the owner’s personal income. As such, it is quite difficult for the owner to attract an investor or raise large funds with the “informal” structure.
An OPC is generally taxed under that of a corporate entity. There is greater credibility, and it suits better entrepreneurs who wish to expand or seek external funding later on.
Conclusion
In summary, both OPC and Sole Proprietorship have a single owner, but they are very different as per the legal structure. A One Person Company offers better investment opportunity, limited liability, and perpetual succession while a Proprietorship Firm offers unlimited personal liability and ends with owner death.
As an entrepreneur if you are looking for One Person Company registration in Guwahati Assam or Proprietorship Firm Registration then leave a note to Regible Corporate Advisor LLP and rest we will handle.
FAQs
Which is better for a startup OPC or Proprietorship?
If you are an early stage startup then go for OPC registration because it gives the owner more protection and security and looks more credible.
How OPC and Proprietorship firms are taxed differently?
A Proprietorship is taxed through the owner’s personal income tax while an OPC is taxed under corporate tax rules and does not affect the owner income.
Which structure is best for raising funds or getting bank loans?
OPC is a better option here because banks and investors view a company structure as more formal and stable compared to an proprietorship.
Is it possible to convert Proprietorship to an OPC or vice versa?
Yes, you can convert an OPC to a proprietorship firm and more further into a Private limited company in future. Contact us for more Information.
Are there any limits on who can form or run an OPC?
Yes there are some limits to form and run an OPC firm. In most cases you need a resident Indian director and one person can not form multiple OPC’s at the same time.
