Introduction
When starting a business in India, one of the first things an entrepreneur has to decide is what type of business structure to adopt. Two popular options for small businesses are Sole Proprietorship and One Person Company (OPC). Both structures have their own advantages and disadvantages, and it is important to understand the differences between them before making a decision. In this article, we will explore the differences between Sole Proprietorship and One Person Company.
What is Sole Proprietorship?
Sole Proprietorship is the simplest form of business structure in India. It is a business owned and operated by one person, who is responsible for all the debts and liabilities of the business. The owner is personally liable for all the debts of the business, and there is no legal distinction between the owner and the business.
What is OPC?
OPC, or One Person Company, is a new concept introduced in the Companies Act, 2013. It is a type of company that can be formed with just one person as its member or shareholder. It has all the features of a Private Limited Company, except that it can have only one member.
Differences between Sole Proprietorship and OPC
- Liability
The primary difference between Sole Proprietorship and One Person Company is the liability of the owner. In a Sole Proprietorship, the owner is personally liable for all the debts and liabilities of the business. On the other hand, in an OPC, the liability of the owner is limited to the extent of the capital invested in the company.
- Ownership
In a Sole Proprietorship, the business is owned and operated by one person. In an OPC, the business is owned by the company and not by the individual owner. The owner is just a member or shareholder of the company.
- Legal Status
A Sole Proprietorship is not a separate legal entity from its owner. The business and the owner are considered one and the same in the eyes of the law. On the other hand, an OPC is a separate legal entity from its owner. It has its own legal identity and can sue or be sued in its own name.
- Perpetual Succession
A Sole Proprietorship has no perpetual succession. The business ceases to exist on the death of the owner. On the other hand, an OPC has perpetual succession. The company continues to exist even after the death of its owner.
- Compliance Requirements
The compliance requirements for a Sole Proprietorship are minimal. There is no need to file any annual returns or audited financial statements with the Registrar of Companies. On the other hand, an OPC has to comply with all the statutory requirements applicable to a Private Limited Company, such as filing of annual returns, audited financial statements, and other compliance requirements.
- Cost of Formation
The cost of formation of a Sole Proprietorship is very low. It requires very little documentation, and there are no registration fees. On the other hand, the cost of formation of an One Person Company is much higher. It requires a lot of documentation, and there are registration fees involved.
- Funding
A Sole Proprietorship is funded by the owner’s personal funds or through loans from banks or other financial institutions. On the other hand, an One Person Company can raise funds from investors or through loans from banks or other financial institutions.
Types of Sole Proprietorship
There are two types of Sole Proprietorship in India:
- Registered Sole Proprietorship
A registered Sole Proprietorship is a business that is registered with the government. It has a registration number and can open a bank account in the name of the business. It is easier to obtain loans and credit cards for a registered Sole Proprietorship.
- Unregistered Sole Proprietorship
An unregistered Sole Proprietorship is a business that is not registered with the government. It does not have a registration number and cannot open a bank account in the name of the business. It is more difficult to obtain loans and credit cards for an unregistered Sole Proprietorship.
Types of OPC
There are two types of OPC in India:
- Private Limited OPC
A Private Limited OPC is a company that has a maximum of 50 members or shareholders. It can raise funds from investors and can have multiple directors.
- Public Limited OPC
A Public Limited OPC is a company that can have an unlimited number of members or shareholders. It can raise funds from the public through an initial public offering (IPO) and can have a minimum of three directors.
Advantages of Sole Proprietorship
- Easy to set up
Sole Proprietorship is very easy to set up. It requires very little documentation and there are no registration fees.
- Control
The owner has complete control over the business. They can make all the decisions regarding the operations of the business.
- Tax Benefits
Sole Proprietorship is considered as an individual entity for tax purposes. This means that the owner can claim tax deductions for business expenses.
- Low Cost
The cost of setting up and maintaining a Sole Proprietorship is very low. There are no registration fees and the compliance requirements are minimal.
- Easy to dissolve
Dissolving a Sole Proprietorship is very easy. The owner can simply stop doing business and the business will cease to exist.
Advantages of OPC
- Limited Liability
The owner’s liability is limited to the extent of the capital invested in the company. This means that the owner’s personal assets are protected in case of business losses.
- Separate Legal Entity
OPC is a separate legal entity from its owner. This means that the business can sue or be sued in its own name.
- Perpetual Succession
OPC has perpetual succession. The company continues to exist even after the death of its owner.
- Easy to raise funds
OPC can raise funds from investors or through loans from banks or other financial institutions.
- Professional Image
OPC has a more professional image than Sole Proprietorship. It is considered more credible and trustworthy by customers and suppliers.
Conclusion
In conclusion, Sole Proprietorship and One Person Company are two popular business structures in India. Sole Proprietorship is the simplest and easiest to set up, while OPC offers limited liability and a more professional image. Both structures have their own advantages and disadvantages, and the choice between them depends on the specific needs and circumstances of the business owner. It is important to consult with a professional before making a decision on which structure to adopt.
