How is One Person Company different from Sole Proprietorship?

April 25, 2022
Registrationwala

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How is One Person Company different from Sole Proprietorship?

How is One Person Company different from Sole Proprietorship?

April 25, 2022

Registrationwala

A Sole Proprietorship firm is also known as a sole trader or simply a proprietorship. It was a popular form of business prior to the introduction of One Person Company due to its simplicity, ease of setup, and nominal cost. It is a kind of business set up in which a single person owns the business and is solely responsible to pay all the debts of the firm.

It is a kind of business set up in which a single person owns the business and is solely responsible to pay all the debts of the firm. One of the biggest disadvantages of this type of company is that the identity of sole proprietor is not distinct from the identity of the firm thus the liability of the owner is unlimited.

To overcome the drawbacks of sole proprietorship the concept of One Person Company was introduced through Companies Act 2013. One Person Company contains the features of both the sole proprietor and the company. This concept was introduced to help the sole proprietor in fulfilling their desire to start a business with limited liabilities.

One of the major benefits of the one person company over the sole proprietor company is that the one person company formed is a separate legal entity from its members and the liability of the owner is limited.

Difference between Sole Proprietorship and One Person Company is as follows-

Basis	One Person Company	Sole Proprietorship
Liability	The liability of the member is limited to his share.	The liabilities of the members are unlimited.
Legal identity of entity	It has a separate legal identity from its members.	It is not considered as a distinct identity from its members.
Registration	OPC can be registered under Company Act 2013.	Registration of sole proprietorship is not compulsory.
Taxation	OPC will be taxed in the same way as a company.	It will be taxed as an individual.
Existence	An OPC does not get dissolved with the death or retirement of the member.	The life of this form of the company comes to an end with the retirement of the sole proprietor.
Compliance	It is required to file annual returns and get its accounts audited.	It is required to get its account audited only if its turnover exceeds the threshold limit as per income tax act.
Conversion	An OPC will be converted into private limited company if has an average turnover of over Rs. 2 crore for three years or a paid-up share capital of over Rs. 50 lakh.	A sole proprietor will always remain a sole proprietor irrespective of its turnover.
Maximum number of members	It can have maximum 2 members.	It can have only 1 member.
Foreign Ownership	Foreign ownership is allowed in case one member is director and the other is nominee. However both director and the nominee cannot be the foreign citizens.	Foreign ownership is not allowed.

Conclusion

In this blog post, we explained the difference between a one person company and sole proprietorship. Both one person company and sole proprietorship are owned by a single individual. However, they’re not the same business entities. A sole proprietorship is a business which is not registered with the Registrar of Companies (RoC). However, a one person company is registered with RoC according to the provisions of the Companies Act 2013.

A one person company is better than sole proprietorship since it offers limited liability protection and it is easier for an OPC to get access to funding. If you want to register an OPC with the RoC, connect with Registrationwala for assistance throughout the company registration process.