This article has been written by Mr. Sana Sri Nandan, a 4th year student of B.B.A., LL.B. (Hons. in Corporate Law), XIM University, Bhubaneswar.

 

ABSTRACT

In a Sole Proprietorship the owner’s liability is not limited and shall be held responsible for all the debts, assets, legal obligations, and the transactions related to the business whereas in an OPC, there is a limited liability towards the owner and such liability is only limited up to the investment he made in the company and to safeguard his personal assets from business liabilities.

 

INTRODUCTION

Both sole proprietorship and One Person Company (OPC) are forms of business entities suitable for single entrepreneurs, but they differ in various aspects. Here’s a difference between the two:

 

Legal Entity:

Sole Proprietorship: It is not considered a separate legal entity from its owner. The proprietor and the business are considered to be the same.

One Person Company (OPC): OPC is a separate legal entity distinct from its owner. It offers limited liability to its shareholders.

 

Ownership:

Sole Proprietorship: Owned and managed by a single individual who bears all profits and losses.

One Person Company (OPC): Owned and managed by a single individual who is known as the sole shareholder.

 

Liability:

Sole Proprietorship: The proprietor has unlimited liability, meaning they are personally liable for all debts and obligations of the business. Personal assets can be used to settle business debts.

One Person Company (OPC): Shareholder liability is limited to the extent of their shareholding in the company. Personal assets of the shareholder are generally protected from business liabilities.

 

Formation:

Sole Proprietorship: Easy and inexpensive to establish. Usually requires minimal legal formalities.

One Person Company (OPC): Requires registration under the Companies Act. Formal procedures including documentation and filing are involved.

 

Compliance:

Sole Proprietorship: Minimal regulatory compliance requirements compared to other business structures. Typically, there are no annual filings required.

One Person Company (OPC): Subject to more stringent compliance requirements, including annual filings, maintenance of statutory registers, and board meetings.

 

Continuity:

Sole Proprietorship: Business continuity can be affected by the death or incapacity of the proprietor. It may cease to exist or pass on to heirs based on applicable laws.

One Person Company (OPC): Continuity of business is ensured as it has a separate legal existence. Succession planning can be done by transferring shares to nominees.

 

Borrowing Capacity:

Sole Proprietorship: Limited borrowing capacity as it relies mainly on the proprietor’s creditworthiness.

One Person Company (OPC): Better access to funding as it can raise capital through loans and investments. The company’s assets can be used as security for borrowing.

 

Taxation:

Sole Proprietorship: Business income is taxed as the proprietor’s personal income. Subject to personal income tax rates.

One Person Company (OPC): Taxed at the corporate tax rate applicable to companies.

Both sole proprietorship and OPC are suitable for single entrepreneurs, the choice between the two depends on factors such as liability protection, scalability, compliance requirements, and taxation preferences. Sole proprietorship offers simplicity and flexibility, while OPC provides limited liability protection and better access to funding but entails more regulatory compliance.

 

Ease in administration: 

No necessity to hold annual or extraordinary general meetings: The goal ought to be imparted by the party and entered in the minutes book. The date on which the passage is made will be considered to be the date of the gathering. 

Quorum: The provisions of Section 174 of The Companies Act, 2013 won’t be appropriate to One Person Company.

Easy loan: Monetary foundations and banks like to loan cash to an organization instead of an exclusive firm.

Registrar of companies filing: Not very many ROC filings are expected to be made with the Registrar of Companies (ROC). 

Section 2(62) of the Companies Act, 2013 characterizes a One Person Company as a company that has just a single individual with respect to its part. Besides, individuals from an organization are only supporters of its notice of affiliation, or its investors. For a One Person Company to work, just a single individual should serve in the directorate. Now and again, we see that SMEs and new companies need introductory financial backers and patrons.

 In this manner, enrolling under an OPC regulation is the most reasonable decision for new ideas. The Organizations Demonstration of 2013 made another business structure that joined Sole Proprietorship and company components. Besides, by allowing solitary business visionaries an opportunity to enter the corporate area.

It is viewed as a confidential restricted partnership since it has restricted risk and a different lawful element. Moreover, One Person Company Enrollment, a clever thought in India, has proactively encountered a critical upsurge. One-Person Company decidedly affect India’s whole economy. On the country’s economy and improvement, a critical impact is expected. It gives prospects to numerous and will, therefore, grandstand energetic, inventive personalities for everybody.

 

Sole Proprietorship: A Sole Proprietorship business is the most straightforward business carried on by a person. A sole owner can lay out the business under his/her name or a made-up name. The individual laying out a Sole Proprietorship business is by and by responsible for its obligations. A Sole Proprietorship doesn’t have a legitimate element like an LLC, OPC or an organization. 

The expenses and compliances for beginning a Sole Proprietorship are negligible. Benefits of Sole Proprietorship least compliances to be stuck to begin a sole proprietorship. It is prudent since it is generally more affordable to begin than an organization or LLP. The sole owner will have complete command over the business. 

The sole owner can take fast choices without requiring endorsement from anybody. The sole owner need not direct board and yearly gatherings. Charge is less since the annual duty chunk for people applies to business benefit. 

There is no prerequisite for compulsory review for a Sole Proprietorship when the business type doesn’t need it. Drawbacks of Sole Proprietorship. The sole owner has limitless responsibility, and in this manner his/her own resources are at risk to pay the business’ obligations. 

It has no never-ending progression. In this manner, it reaches a conclusion on the off chance that the sole owner lapses. It isn’t difficult to raise capital for the business since a solitary individual oversees it. At the point when the business is confused, banks can record a suit against the sole owner. Development of the business becomes extreme since a solitary individual oversees it. 

One Person Company: The Companies Act, 2013, presented the idea of a One Person Company (OPC). An OPC is a crossover of a Sole Proprietorship business and an organization. An OPC furnishes a sole owner with a valuable chance to lay out an organization. It is viewed as a privately owned business with restricted risk. 

It has a different lawful element and should direct no less than one executive to be gathering in every portion of the year. Benefits of OPC. An OPC has a different legitimate substance status from the individual laying out it (single part). The party’s responsibility is restricted to his/her portions. 

The party isn’t actually responsible for the organization’s misfortune. It is not difficult to raise capital/assets since OPC is a privately owned business. OPC has less compliance when contrasted with private restricted organizations or LLPs.

 It is not difficult to integrate OPC since only one part, and one chosen one exists. It is not difficult to oversee organization undertakings since a solitary individual lays out and runs the OPC. The OPC has unending progression in any event, when just a solitary part exists. 

Since it is laid out under The Companies Act, 2013, it has believability as a business. Drawbacks of OPC It is reasonable for just private company structures since the most extreme number of individuals an OPC can have been one. 

The OPC can’t direct a Non-Banking Monetary Speculation movement, remembering the venture for protections of some other organization. Since the sole part can be the organization chief, there is no reasonable qualification between organization proprietorship and the executives.

 

Legal requisites: A sole proprietorship is the most favored type of carrying on with work on the grounds that no formal/separate enrollment is expected for directing such business. A sole proprietorship can be run from a private foundation or from a business foundation. Assuming the proprietor picks the last option, he should consent to specific arrangements of the Shop and Establishment Act, the arrangements of which contrast across various states. A sole proprietor should have a Permanent Account Number (PAN) card as government forms are documented for the sake of the owner. To take part in worldwide exchange, he must acquire an importer and Exporter Code from the Director General of Foreign Trade.

 

Advantage of a Sole Proprietorship Sole Proprietorship is a famous type of carrying on with work, and accompanies the accompanying benefits: Simple to shape and end up: A sole proprietorship is not difficult to frame and wrap up; it doesn’t need formal enrollment with the exception of those organizations which are expected to have vital licenses given by the nearby specialists. The sole dealer is at outright caution to shape or end up the business whenever. No proper enrollment: It isn’t required for sole owners to enlist their business. Notwithstanding, an exemption for the equivalent can be made for specific assessment related and business explicit enlistments. Speedy choice taking power: The responsibility for business is in the possession of one individual for example the sole owner. Subsequently, he has outright control and can go with fast and adaptable choices. A sole owner is allowed to counsel others (experts) prior to taking a choice. Close private relations: Close private relations are kept up with by the sole owner with his workers and his clients. This guarantees a smooth stream in the business. 

Wellbeing of business mysteries: Since the executives and control are in the possession of the sole owner, maintaining business mysteries is simple. It is crucial for stay discreet and details from contenders and outcasts. No sharing of benefits: As the name proposes, the sole owner is the sole proprietor of the business, thus all benefits are held by him. Direct inspiration: There is an immediate connection among endeavors and prize, in this manner, the sole owner would be leaned to work harder to get higher benefits and make negligible misfortunes. Gives business: Sole proprietorship gives work to the sole owner as well as those subordinate to him. 

Drawbacks of a Sole proprietorship Sole proprietorship like some other sort of business isn’t liberated from encumbrances; following are the hindrances of a sole proprietorship: 

Restricted Capital: The proprietor of a sole proprietorship is dependable to organize assets to guarantee the business begins, supports and succeeds. This can get troublesome as an individual can source a restricted measure of assets from outside financial backers, banks and other monetary foundations. The inadequacy of smooth streaming capital can check the development of the business or even put it to a halt. 

Limitless Risk: In the event that a sole owner neglects to meet the business obligations, his own resources might be utilized to meet such liabilities. All his privately invested money is connected to the business. This restricts the sole owner from facing challenges and makes him additionally mindful about beginning or extending the business.

 Absence of coherence: A sole proprietorship is intently attached to the existence of the sole owner. The business will be unable to endure the demise of a proprietor. Thus, saying that demise of the proprietor stops the business is protected. Restricted development: The sole owner can’t be a specialist in that frame of mind of business the board; consequently, extension restricts itself at the pinnacle of the sole owner’s true capacity. Absence of skill: A sole owner perhaps proficient, however he can’t be a specialist at each part of business. Likewise, an absence of extra discretionary cashflow makes employing experts a confined action. This thus hampers the development of a sole proprietorship. Restricted size: A sole proprietorship can extend in a measured way, past which a sole individual can’t deal with every one of the expert exercises alone because of the sheer endlessness of the exercises and meeting the difficulty of being truly present wherever simultaneously. 

Lawful Necessities A sole proprietorship is the most favored type of carrying on with work in light of the fact that no formal/separate enlistment is expected for directing such business. A sole proprietorship can be run from a private foundation or from a business foundation. In the event that the proprietor picks the last option, he should consent to specific arrangements of the Shop and Foundations Act, the arrangements of which contrast across various states. A sole owner should have a Permanent Account Number (PAN) card.

An OPC as the name proposes is a unique sort of confidential restricted organization that main requirements one chief or investor to be set up (a privately owned business needs something like two chiefs and can have up to 50 investors). The organization is a different legitimate element, particular from the chief and can hold resources, assume obligation, and carry on business under its own name. The idea of OPC appeared with the Organizations Demonstration of 2013 to give some kind of a possibility for people who were searching for more than sole ownership however under a completely practical privately owned business or association. Something extraordinary about the OPC is that you don’t need to hold executive gatherings or comprehensive gatherings, however all choices taken through goals must be kept in the records like the minutes of gatherings.

 

A One Person Company would get the situation with a different lawful element according to the companies act, 2013. Such One Person Company enrollment guarantees that the substance is discrete from the proprietor, dissimilar to an ownership firm. Insurance of the organization’s very own resources guarantees that the proprietor has restricted responsibility to the degree of his/her own portion. Indeed, even on account of liquidation, the individual resources of the party are safeguarded, besides in specific determined cases. The One Person Company gives the organization a construction like a confidential restricted organization and subsequently makes it coordinated with the advantage of restricted obligation. Ownership doesn’t give a coordinated construction. There is no prerequisite to sit tight for anybody’s endorsement as there is just a single individual who is the single power to decide. Enormous associations like to manage One Person Company rather than ownership firms. One Person Company is enrolled very much like a privately owned business and privately owned businesses are the believed type of business which makes it simple for them to get subsidization from the monetary foundations. It gives providers and clients a feeling of trust in the business. One Person Company may likewise select an unmistakable person as chief for its administration. One Person Company included is with the end goal that it has just a single investor who claims 100 percent stake of the organization. In any case, in One Individual Organization, the investor holds full oversight over being a partner. To keep up with the personality of ceaselessness, the arrangement of a candidate is required in the event of one individual organization. There are insignificant consistency or exposure necessities during the entire monetary year when contrasted with other confidential restricted organizations. One individual can’t consolidate more than 1 One Person Company or become a candidate in more than 1 one individual organization. No minor will turn into a part or chosen one of the One Person Company hold imparts to helpful interest. One Person Company can’t complete Non-Banking Monetary Speculation: remembering venture for protections of anyone corporate. No Unending Progression: Since there is just a single part in a one individual organization, his demise will bring about the chosen one picking or dismissing to turn into its only part. 

 

Assets and Liability: In a OPC, the liabilities of the business are limitless. This states, on the off chance that the business brings about any misfortunes, the obligations will be paid by utilizing the resources of both the organization and the proprietor. Be that as it may, assuming the business experiences misfortunes in OPC, the liabilities at the proprietor’s end will be restricted as the OPC is a different legitimate element. Taxation: The One Individual Organization idea was presented through the Organization Demonstration of 2013 and is treated as a Confidential Restricted Organization and furthermore there are no different expense arrangements made for OPC in the Personal Duty Act, thusly it is exposed to charges likewise as a Confidential Restricted Organization. For Sole Ownership, the tax collection process is different as the pay of the business is treated as the pay of the sole proprietor and in this way liable to charges as needs be. Succession: In OPC, the individuals from OPC should assign a chosen one for the progression of the OPC. Thus, on the off chance that the individual from the OPC dies, the honor for getting the OPC will be then passed down to the chosen one. Considering that, the chosen one ought to essentially be a resident of India (Occupant Indian Resident). Then again, there is no distinction between the business and the sole proprietor in a sole ownership. Thus, the progression of sole ownership must be done by confirmation and execution of the will, which could possibly is tested by the courtroom. Compliance: A-One Individual Organization ought to obligatorily consent to every one of the essential yearly compliances as a Confidential Restricted Organization and should review its monetary records and document its yearly returns in the specified time span. In any case, the sole ownership is expected to review its record under segment 44 Stomach muscle, provided that its yearly turnover passes as far as possible, which might be determined under the arrangements of the Annual Duty Act.

 

CONCLUSION

 

One Person Company has existed universally throughout recent years, while it actually stays to be a new peculiarity in India as it was just presented in 2013. An OPC makes a different legitimate element rather than the sole proprietorship approach to carrying on with work. A sole proprietorship stretches out the responsibility to the owner, though in an OPC the business visionary is simply obligated to the degree of neglected memberships.

 An OPC additionally partakes in specific exclusions from compliances that should be stuck to by greater organizations, making an OPC more alluring. In any case, the greatest hindrance in picking an OPC over sole proprietorship is that an OPC is charged at 30% rather than sole proprietorship business which is burdened alongside the person. 

One key advantage in India would appreciate through the foundation of OPC’s is that it will assist with arranging the sloppy area of ownership. All in all, an OPC or a SP would be the decision of an individual relying upon his necessities, field-tested strategy, economic situations, and so on. One could see little changes in the duty structure after execution of the Goods and Service Tax (GST) which was passed in 2016 and came into effect from 2017.

 

References: –

This article was originally written by Komal and published on brainly website. The link for the same is herein. https://brainly.com/question/30464784

This article was originally written by Mayashree Acharya and published on cleartax website. The link for the same is herein.  https://cleartax.in/s/one-person-company-vs-sole-proprietorship

This article was originally written by Habah and published on aktassociates website. The link for the same is herein. https://aktassociates.com/blog/one-person-company-vs-sole-proprietorship/