A One-Person Company (OPC) has a different business structure than a Sole Proprietorship. Both business structures are for small businesses and involve minimal paperwork and compliance. Though both have unique characteristics and function differently.
The concept of a one-person company was first established in the Companies Act of 2013. Until then, sole proprietorship was the only option available for an individual to start a business. Now there is an alternative available, an OPC.
- The OPC business structure combines the features of a sole proprietorship and a private limited company. It offers an option to start a company by a single person. Once you register an OPC, it gets a separate legal existence. It can be considered to be a private company with limited liability.
- A sole proprietorship is run by a single person and is the simplest form of business structure. It does not have a separate legal status like an OPC. The cost and compliance of forming a sole proprietorship are minimal. A sole proprietor controls the entire business.
OPC versus sole proprietorship
- An OPC has to be registered in India with the Ministry of Corporate Affairs (MCA). It is not mandatory to register a sole proprietorship.
- An OPC gets a separate legal status, whereas a sole proprietorship is not registered and does not get a legal status.
- An OPC offers limited liability, which means that the personal assets of the owner are safe in case the business incurs a loss. A sole proprietorship offers unlimited liability, and the owner is liable for the debts of the business.
- An OPC requires a nominee to whom the business can be transferred after the death of the owner. The one-person company registration process requires you to submit the consent and the details of the nominee. You cannot pass a sole proprietorship to a new owner.
- In an OPC, at least one director is required, while a sole proprietorship does not need a director.
- To establish an OPC, the owner must be a citizen of India and a resident of India and above 18 years of age. To establish a sole proprietorship, the owner must be a citizen of India above 18 years of age.
- The existence of an OPC does not depend on the owner, as the nominee will continue after the death of the owner. A sole proprietorship ends with the retirement or death of the owner.
- An OPC is taxed at 30% of the profits, cess and surcharge, while a sole proprietorship is taxed at the individual slab rate.
- An OPC has to do annual filings with the Registrar of Companies (ROC) as per the Companies Act and Income-tax Act. A sole proprietorship has to annually file for income tax.
Advantages of an OPC
- An OPC has a separate legal status from its owner. The owner's liability is limited to the shares owned. The owner is not liable for the company's loss. As it is established under the Companies Act, it has credibility as a business.
- An OPC has a legal existence and can raise funds in its name.
- The owner who forms an OPC also controls and runs it, thus making it easier to manage. An OPC offers perpetual succession as only one nominee exits.
- It is easy to incorporate an OPC as it has only one owner and one nominee. An OPC requires fewer compliances when compared to other business structures.
Advantages of a sole proprietorship
- A sole proprietorship is less expensive to start than a company or LLP. You have to follow minimum compliance to start a sole proprietorship.
- The sole proprietor controls the business and can make decisions without anybody's approval. The sole proprietor does not have to conduct board or annual meetings.
- The income tax for individual slabs applies to the business profit; therefore, the tax is less.
- There is no need for an audit for a sole proprietorship if the business type does not need it.
An OPC business structure is perfect for small businesses as it allows only one owner. In a sole proprietorship, the owner is liable for the business losses. There is a difference between an OPC and a sole proprietorship. As OPC has a legal status, it is a preferred business structure over a sole proprietorship.