OPC vs. Sole Proprietorship

OPC is the registered form of business entity having protection of limited liability with tax benefits, minimum paid up capital, easy transferability over sole proprietorship.

 

Although the structure of OPC (One Person Company) is similar to the sole proprietorship but the new concept of OPC get rid of the issues usually faced by the sole proprietors. The main feature of OPC is limiting the liability to the extent of the value of shares held by the member in the company.

Difference between OPC and Sole Proprietorship

 

The below tables unveil the differences between the OPC (One Person Company) and Sole Proprietorship:

Particulars

One Person Company

Sole Proprietorship

Governing Law

One Person Company prevailed by the Companies Act, 2013.

Sole Proprietorship is not governed under any specific act.

Registration

One Person Company is compulsory to register under the Companies Act, 2013.

It’s not necessary to register the sole proprietorship under any act.

Name Approval

Name approval must be obtained from the ROC in prescribed form INC-1. The word ‘One Person Company’ must be attached in brackets with the name of the company.

There is no requirement to take the prior approval for the name of the company.

Liability

The sole owner has a limited liability in one person company in case the business suffers a loss.

A sole proprietorship suffers from unlimited liability. Hence, all the liability incurs by the owner.

succession

In One Person Company, we have a concept of nominee who get the business on the death or disability of the owner.

Generally the legal heirs get the business on the death or disability of owner through will which may not be challenged in a court of law.

Taxation

The income of the One Person Company is taxed at the flat rate of 30% plus education cess in addition to surcharge when applicable.

The income of the sole proprietorship is clubbed with the individual’s income and taxed accordingly in the hands of sole owner of the company.

Minimum Paid Up Capital

Minimum Rs.100000 is required as a paid up capital to form One Person Company.

There is no such requirement of minimum paid up capital in case of sole proprietorship.

Compliance

It’s required to file annual return, income tax return, financial statements, maintain the books of accounts as a part of annual compliance.

In sole proprietorship only filing of income tax return is required.

Conversion

Voluntary conversion is possible only after the two years of the incorporation of the company. However, if any of the following condition is satisfied then OPC will automatically lose its status:

  • Paid up share capital exceeds to Rs.50 lacs
  • Average annual turnover exceeds to Rs.2 crore

Sole proprietorship remains same whether paid up share capital or average annual turnover increase or not.

Separate entity

OPC is a separate legal entity from its owner that means it has separate legal personality in the eyes of law.

Whereas in sole proprietorship the business and the owner share the same identity, no separate identity is there.

Uninterrupted existence

OPC will continue whether the sole owner come or go.

Sole proprietorship ceases to exist with the death of the owner.

Transferability of shares

Shares can be transfer by altering the MOA (Memorandum of Association).

Shares cannot transfer; it can only be transfer by way of inheritance after the death of the owner.

Audit

Statutory audit is required irrespective of the paid up share capital or turnover.

No such provision is there related to auditing.

Number of directors

Minimum number of director should be one and in case of no director, the member himself considered as deemed first director.

Maximum 15 directors can be appointed, for appointing the directors beyond the limit Special resolution is required to be pass.

No guidelines are provided for the number of directors required to be appointed.

 


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