Looking to file ITR? /> File your ITR with Clear in 48 hours
Get Expert Assistance
An One Person Company (OPC) and Sole Proprietorship sound similar, but their functioning is different. There is a difference between OPC and sole proprietorship in terms of working and law. Until the introduction of the Companies Act, 2013, a sole proprietor has only one option to start a business, i.e. by establishing a sole proprietorship. But, now they have an alternative option, i.e. OPC.
In this article, we will discuss which is better, OPC or sole proprietorship, why sole proprietorship is better than LLC (Limited Liability Company), the advantages of OPC over sole proprietorship and the differences between proprietorship and OPC.
A sole proprietorship business is the simplest business carried on by an individual. A sole proprietor can establish the business under his/her name or a fictitious name. The individual establishing a sole proprietorship business is personally liable for its debts. A sole proprietorship does not have a legal entity like an LLC, OPC or a company. The costs and compliances for starting a sole proprietorship are minimal.
The Companies Act, 2013, introduced the concept of a One Person Company (OPC). An OPC is a hybrid of a sole proprietorship business and a company. An OPC provides a sole proprietor with an opportunity to establish a company. It is considered a private company with limited liability. It has a separate legal entity and must conduct at least one board meeting in each half of the year.
The below tables lists sole proprietorship vs OPC India:
|Registration||No compulsory registration||Should be registered under the Companies Act, 2013 on the MCA website|
|Legal status||Does not have a separate legal status||Has a separate legal status|
|Members liability||Sole proprietor has unlimited liability||Member has limited liability|
|Nominee||Does not require a nominee||Requires a minimum of one nominee to establish an OPC|
|Directors||No directors required||Minimum of one director is required|
|Foreign ownership||Not allowed||Allowed when one is the director and the other is the nominee but both cannot be foreign citizens|
|Transferability||Cannot be transferred||Can be transferred to the nominee|
|Survival||Comes to end upon the death or retirement of the sole proprietor||Existence is independent of member since the nominee or director will continue OPC upon the member’s death|
|Taxation||Taxed in the individual slab rate||Tax rate is 30% on profits plus cess and surcharge|
|Annual filings||Filing of only income tax returns||Filings with the Registrar of Companies (ROC) as per the Companies Act, 2013 and Income Tax Act|
Thus, it is clear that there are differences between OPC and sole proprietors. Though an OPC and sole proprietorship have only one person/member, their functioning differs. OPC has the features of a company, while the sole proprietorship does not enjoy the benefits of a company. Thus, the sole proprietor has unlimited liability, and the business does not have perpetual succession.
OPC must have a nominee who will look after the company upon the death of the sole proprietor, but there is no such requirement in the case of a sole proprietorship. Thus, people prefer OPC compared to a sole proprietorship.
Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.