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One Person Company (OPC) Vs Sole Proprietorship India

Updated on: Nov 24th, 2022 - 8:04:24 PM

7 min read

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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.

Sole Proprietorship

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.

Advantages of Sole Proprietorship

  • Minimum compliances to be adhered to start a sole proprietorship.
  • It is economical since it is relatively less expensive to start than a company or LLP.
  • The sole proprietor will have total control over the business.
  • The sole proprietor can take quick decisions without needing approval from anyone.
  • The sole proprietor need not conduct board and annual meetings.
  • Tax is less since the income tax slab for individuals applies to business profit.
  • There is no requirement for mandatory audit for a sole proprietorship when the business type does not require it.

Disadvantages of Sole Proprietorship

  • The sole proprietor has unlimited liability, and thus his/her personal assets are liable to pay the business’s debts.
  • It has no perpetual succession. Therefore, it comes to an end if the sole proprietor expires.
  • It is not easy to raise capital for the business since a single person manages it.
  • When the business is at a loss, creditors can file a suit against the sole proprietor.
  • Expansion of the business becomes tough since a single person manages it.

One Person Company

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.

Advantages of OPC

  • An OPC has a separate legal entity status from the person establishing it (single member).
  • The member’s liability is limited to his/her shares. The member is not personally liable for the company’s loss.
  • It is easy to raise capital/funds since OPC is a private company.
  • OPC has fewer compliances as compared to private limited companies or LLPs.
  • It is easy to incorporate OPC since only one member, and one nominee exists.
  • It is easy to manage company affairs since a single person establishes and runs the OPC.
  • The OPC has perpetual succession even when only a single member exists. 
  • Since it is established under the Companies Act, 2013, it has credibility as a business.

Disadvantages of OPC

  • It is suitable for only small business structures since the maximum number of members an OPC can have is one.
  • The OPC cannot conduct a Non-Banking Financial Investment activity, including the investment in securities of any other company.
  • Since the sole member can be the company director, there is no clear distinction between company ownership and management.

Difference between Sole Proprietorship and OPC

The below tables lists sole proprietorship vs OPC India:

ParticularsSole ProprietorshipOPC
RegistrationNo compulsory registrationShould be registered under the Companies Act, 2013 on the MCA website
Legal statusDoes not have a separate legal statusHas a separate legal status
Members liabilitySole proprietor has unlimited liabilityMember has limited liability
NomineeDoes not require a nominee Requires a minimum of one nominee to establish an OPC
DirectorsNo directors requiredMinimum of one director is required
Foreign ownershipNot allowedAllowed when one is the director and the other is the nominee but both cannot be foreign citizens
TransferabilityCannot be transferredCan be transferred to the nominee
SurvivalComes to end upon the death or retirement of the sole proprietorExistence is independent of member since the nominee or director will continue OPC upon the member’s death
TaxationTaxed in the individual slab rateTax rate is 30% on profits plus cess and surcharge
Annual filingsFiling 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.

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