Difference between Proprietorship and OPC One Person Company
Selecting the suitable business structure is the very first step in starting a business. This selection is based on different parameters including business plan, number of partners, investment requirements, foreign investment, area of operation, ability to take risk, etc.
Difference between Proprietorship and OPC can be analysed on parameters such as Business Formation and Legal Status, Business Risk on Personal Assets, Acceptance and Credibility, Attracting Investments, Tax and Legal Compliances, and Startup advantages, Business Succession etc. etc.
Comparison of Proprietorship and One Person Company
Comparing the advantages and disadvantage of different business structure is very important in selecting the suitable business structure by an entrepreneur.
Different Business Structures
In India, a business can be organized in different forms such as Sole Proprietorship, Partnership, One Person Company, Limited Liability Partnership, Private Limited Company or Public Limited Company. While selecting a business organization, one must have an understanding about the different types of business structures, its merits and demerits, public acceptance and image.
Comparison of Proprietorship and One Person Company
Here is the Comparison of Proprietorship and One Person Company on the parameters such as Business Formation, Benefits of Business Structure, Business Management, Taxation, Accounts, Audit, Records And Legal Compliances
BUSINESS FORMATION
Criteria | Sole Proprietorship | One Person Company (OPC) |
| Incorporation / Registration | No agreement or registration required to start a proprietorship as same is an individual business | Incorporated under provisions of Companies Act, 2013 |
| Minimum number of owners | Single individual member | Only 1 shareholder required |
| Minimum Number of Directors / Designated Partners | Proprietor himself manages his business | Minimum 1 Directors required. |
| Maximum number of owners | Proprietor himself is the owner | OPC can have only one shareholder at any time. Additional shareholders can’t be added. |
| Capital Requirements | No Minimum capital requirements | No requirement of Minimum Authorised and paid up capital |
| Cost of Registration | No registration required to start the business | No much difference in registration cost of an OPC compared to Private Limited Company
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BENEFITS OF BUSINESS STRUCTURE
| Criteria | Sole Proprietorship | One Person Company (OPC) |
| Liability of Owners | Owner has Unlimited Liability on business transactions | Limited to the unpaid amount of shares taken in the company |
| Duration of Business | At the will of the owner or on the death of the proprietor | Continue until winding up under Companies Act. |
| Changes in the ownership | Proprietorship can transfer his ownership | Company will continue irrespective of changes in the ownership or management |
| Ownership of property | Owned by proprietor in his personal name | All assets and liabilities owned by the company |
| Withdrawal of Capital | A proprietor can withdraw money any time. | Once paid up, capital cannot be withdrawn by shareholders without the approval of court. Company can buy back the shares subject to Companies Act. |
| Interest on capital | No interest on capital | Company cannot provide interest on capital to shareholders |
| Termination of ownership | Death of the proprietor ends his business. | In the event of the shareholder death or incapacity to contract, the Nominee shall become the member of that OPC. |
| Removal from the ownership | Not possible. | If the shareholder do not want to continue the business, he can close the company subject to conditions under Companies Act |
BUSINESS MANAGEMENT
Criteria | Sole Proprietorship | One Person Company (OPC) |
Directors / Designated Partners | No such concept. | A director need not be a shareholder. |
| Management | Managed by proprietor himself | Management of Company is vested with Board of Directors elected by the single shareholder |
| Meetings for Management Decisions | No requirements of meetings. | Operational decisions are taken by Director / Directors at a meeting. In case of an OPC with more than one directors, there should be at least one meeting of the Board of Directors in every half of a calendar year and the gap between the two meetings is not less than ninety days. |
| Ownership Meetings for specific Decisions | No requirements of meetings. | General meeting of Single Shareholder to be recorded for compliance purpose. |
| Remuneration | All income belongs to the proprietor and salary is not applicable | Directors can take remuneration. No restriction in Companies Act |
ACCOUNTS, AUDIT, RECORDS AND LEGAL COMPLIANCES
Criteria | Sole Proprietorship | One Person Company (OPC) |
| Accounts | Accounts to be maintained with all supporting documents | Accounts to be maintained with all supporting documents |
| Audit Requirements | Accounts to be Audited by a Chartered Accountant only if the turnover exceeds Rs.1 Crore. | Accounts to be Audited by a Chartered Accountant whether the company does any business not. |
| Registers and Records | No need of maintaining Registers, Records and Minutes
| Limited Company is required to maintain lot of Registers, Records and to keep Minutes of Board Meetings and General Meetings from time to time irrespective of doing business or not. |
| Annual and Event based Filings | No such requirements | Company is required to file certain statutory returns annually and other filings based on certain events from time to time irrespective of doing business or not. |
TAXATION
Criteria | Sole Proprietorship | One Person Company (OPC) |
| Permanent Account Number (PAN) | There is no separate PAN for proprietorship. PAN of proprietor will be used for proprietorship. | Company is required to have a separate PAN other than Shareholder or Director |
| Tax Rate | Individual taxation rate apply | Company is taxable at 22% on net profit and the Effective IT Rate (IT+Surcharge+Ces) will be 25.52%. |
| Dividend Distribution Tax (DDT) | No distribution tax as profit belongs to proprietor. | Company Profit, if distributed as Dividend, it will attract Dividend Distribution Tax (DDT) @ 20.36% on dividend |
| Taxability of Dividend in the hands of Shareholder / Partner
| No distribution profit as profit belongs to proprietor. | Dividend from a domestic company up to ₹10 Lakhs is exempted in the hands of a Shareholder. Dividend in excess of ₹10 Lakhs shall be taxable at 10% in the case of a resident individual/HUF/Firm |
| Tax Filings | Required to file Tax returns every year. In case of no business, a ‘NIL’ return is required to be filed. Delay in tax return Filings will attract Penalties and the Loss can’t be carried forwarded for setoff | Required to file Tax returns every year. In case of no business, a ‘NIL’ return is required to be filed. Delay in tax return Filings will attract Penalties and the Loss can’t be carried forwarded for setoff |
STARTUP BUSINSES CRITERIAS
Criteria | Sole Proprietorship | One Person Company (OPC) |
| External Investment – Angels / VC / PE etc. | No Investors allowed other than Sole Proprietor. | No Investors allowed other than Sole Shareholder. |
| Start-up India Registration | Not Available | OPC can be registered under Start-up India program. |
| Employee Stock Options Plans for attracting Employees
| Not Possible | Not Possible |
One Person Company Registration
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