An OPC is a company that is limited by shares and run by a single person. A sole proprietorship is a company that is owned and run by an individual and there is no distinction between the owner and business.
The difference between a One Person Company and sole proprietorship is as follows
- Registration – Before starting a business, you need to get your business registered. However, in case of a sole proprietorship, this particular criterion is not a prerequisite. While the registration process of an OPC is a lengthy one.
- Limited Liability – In case of an OPC, the owner has a limited liability if the business suffers a loss. On the other hand, a sole proprietorship has unlimited liability which means that the assets of the owner will be used to pay off the debts if the business suffers a loss.
- Taxation – An OPC is taxed in line with the provision of income tax for the Private Limited Company. The taxation for a sole proprietorship is different as the income of the company is treated the same as that of the owner and income tax is levied accordingly.
- Succession – An OPC needs to have a nominee designated by its member. The nominee must be a resident and a citizen of India by birth. The nominee becomes a member of the company and will be responsible for running the business in case of death of the member. Succession can take place only through the execution of the last testament or will in case of a sole proprietorship.
- Compliances – An OPC has to file its annual returns and meet the other compliances of a private limited company and also get the accounts audited in the same manner. A sole proprietorship only has to get its annual returns filed.
- Conversion – Conversion of a sole proprietorship to a private limited company involves a lot of complications. An OPC automatically gets converted to a private limited company if its paid-up shares exceed Rs 50 lakhs and the average turnover for any three consecutive financial year is more than Rs 2 crore.
- Brand Value – An OPC has a brand value as it is registered under the Companies Act and gets a registration certificate. An OPC has a brand value which a sole proprietorship lacks.
An OPC and a sole proprietorship have pros and cons of their own. If you’re confused over which business entity suits your business the best, you can get in touch with the professionals at Aavana who will help you choose the best business entity based on your requirement.