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.
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:
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.