Difference Between Sole proprietorship and one Person Company (OPC)

For some individuals, a one person company and a sole proprietorship may be the same. However, there is a huge difference between the functioning of both. The difference between a one person company and a sole proprietorship lies in working and law.Before the introduction of the Companies Act, 2013, the proprietors had only one option to start their business i.e. by making a sole proprietorship but now they can establish their business using an OPC (One Person Company).

In this blog, we will be discussing what is better, a sole proprietorship or a one person company, also how is a one person company is better than a limited liability company and the differences between a sole proprietorship and a one person company.

A Sole Proprietorship

The simplest form of business that can be carried on by an individual is a sole proprietorship. The proprietorship can be established under the name of the proprietor or under an imaginary name. The proprietor is solely responsible for all the liabilities and debts of the firm. A proprietor also does not have a lawful entity like a company or a one person company. However, the cost for starting a sole proprietorship and its compliances are quite low.

Advantages:

• The cost of compliances for starting a proprietorship are minimal.
• It is economically beneficial as it is less expensive.
• The proprietor has full control over the proprietorship.
• The proprietor does not need any sort of approval from anyone and can act efficiently.
• The proprietor does not have to hold meetings on a general or annual basis.
• The amount of tax that is paid is less.
• No need to perform the mandatory audit for a proprietorship if the business type does not need it.

Disadvantages:

• A proprietorship has unlimited liability. This means that the assets of the proprietor are at high risk.
• It does not provide the facility of perpetual succession i.e. the business ends once the proprietor dies.
• It is difficult to raise funds for a sole proprietorship
• If the business faces a loss, then the creditors may end up filing suits against the proprietor.
• It is not easy to expand the business when you are a sole proprietor.

A One Person Company

The concept of a one person company was introduced by the COmpanies Act that was launched in 2013. A one person company is like a combination of a company and a sole proprietorship. This helps a proprietor to establish his business as a company. A one person company is considered to be a private limited company which has limited liability. A one person company also has a lawful entity and needs to hold at least one board meeting every 6 months.

Advantages:

• A one person company has a different identity status that is legal and valid and distinct from the owner.
• It gives the facility of limited liability. As the anime suggests, a person has liability limited to the amount of shares they have in the company. No person is personnel for the losses that the company faces.
• Since it is a private company, it becomes easy to raise funds for it.
• It has less compliances as compared to a LLP or a private limited company.
• The incorporation of a one person company is easy since there is just one member and one nominee.
• It is easier to manage the affairs of the company.
• It offers the facility of perpetual succession.
• It also has credibility as a business because it is established under the Companies Act, 2013.

Disadvantages:

• It is best suited for small businesses since there is just one member.
• A one  person company does not have the authority to perform a non-banking financial investment activity like investing in the securities of some other company.
• There is no proper clarification between management of the business and its ownership since a single member can be the company director.

Difference between a Sole Proprietorship and an One Person Company