While comparing functions One Person Company Vs Sole Proprietorship is different. Before the enactment of Companies Act 2013, the Sole Proprietor has only option to initiate a business by establishing Sole Proprietorship.
After the enactment of Companies Act 2013, the concept of One Person Company is existing as an alternative option. In this blog, let us discuss the cons and pros of Sole proprietorship and One Person Company and its differences.
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What is Sole Proprietorship?
A Sole Proprietorship is a separate legal entity and it is also known as Sole Trader or simple a proprietorship. Under Sole proprietorship, a single person owns the business and is solely liable to pay all the debts of the firms. The Sole Proprietorship comes to an end on the death or retirement of any member in the entity.
What is a One Person Company?
The enactment of Companies Act introduced the concept of One Person Company to remove the complexities and disadvantages of sole proprietorship. The OPC contains features of both the company and Sole Proprietorship. One of the important aspect of OPC is it provides Limited liability protection to the proprietor and also allow proprietor to nominate a individual as a nominee in the event of his demise or incapacity to continue the business and secure the interest of shareholders.
Compare One Person Company Vs Sole Proprietorship
| Features | One Person Company | Sole Proprietorship |
|---|---|---|
| Liability | Liability is limited to the extent of capital investment and protects personal assets from risk. | Proprietor is personally liable for all the debts and obligations of the business. |
| Separate Legal Entity | It is separate legal entity | Not considered as separate legal entity |
| Business Continuity | Business continues to exist even after the demise of proprietor | Business ceases to operate on the death or incapacity of the proprietor |
| Registration | Compulsory under Companies Act 2013 on the MCA website | It is optional |
| Nominee | Minimum one nominee is must needed | Not Mandatory |
| Directors | Minimum one director is required | Not required |
| Tax liability | Revenue generates from the OPC will be taxed at the rate of 30% only & no subsidies will be allotted to the companies. | Income generated from the sole proprietorship will add into the income of the owner and thus taxable under his slab rate accordingly. |
| Conversion | OPC can be converted into Private Limited Company if it has an average turnover of over INR 2 crore for three years or a paid-up share capital of over INR 50 lakh. | Always remain a Sole Proprietor irrespective of its turnover. |
The Sole proprietorship and the One Person Company both has its own advantage and disadvantages. It is at the discretion of an individual to choose as per his needs. If an individual has capital to invest and grow more, then he will opt OPC. if he do not have any capital to invest, then he will prefer Sole Proprietorship.
Conclusion
In conclusion, the choice of One Person Company Vs Sole Proprietorship hinges on individual circumstances and preferences. While Sole Proprietorship offers simplicity and flexibility but comes with unlimited personal liability, OPC provides limited liability protection, a separate legal entity, and business continuity even after the proprietor’s demise. The decision ultimately depends on factors such as capital investment, risk tolerance, and long-term business goals.
FAQs
1. Which is better proprietorship or partnership?
The choice between proprietorship and partnership depends on factors like ownership control and liability, with proprietorship being simpler but riskier, and partnership offering shared responsibility.
2. Can we convert proprietorship to One Person Company?
Yes, in India, a proprietorship can be converted into a One Person Company under certain conditions and legal procedures.
3. What is difference between proprietorship and firm?
A proprietorship is a business owned by a single individual, while a firm is a partnership involving two or more individuals who share ownership and responsibilities.
4. Is proprietorship a company or individual?
Proprietorship is a business structure owned and operated by an individual, not a separate legal entity like a company.
