People usually confuse between sole proprietor and one person company (OPC). The reason for the confusion is the single owner of both types of entities. Both sole proprietor and OPC have an only single owner but the difference lies in the legal structure of these entities. A sole proprietorship is the oldest form of business in India whereas OPC is totally a new concept which is the invention of the Companies Act, 2013. In other words, we can say OPC is the modern form of sole proprietorship model.
What is sole proprietorship?
Sole Proprietorship in India is traditional business form and preferred by most of the people because of no legal formalities to start this business. Under this type of ownership, there is only single owner who run the whole show independently. When the sole proprietorship was in prevalent at that time, scale of operation were used to be at a small level and there were lesser risk, but as the time passed managing business becomes more complex because it cross the domestic boundaries and entered the international market. This becomes the problem for the sole owner to manage business under the informal structure which does not have any legal structure. This problems led to the solution of incorporated entity.
What is One Person Company?
OPC was basically a demand of industries. It was invented for the professional who can manage his work under the single ownership such as IT professionals, doctors, consultants etc. The main benefit to give a shape of OPC to your business is the legal status of your business.
When OPC concept was not introduced, people used to choose Proprietorship as their form of business. Proprietorship has many disadvantages like
- One cannot take investments
- No legal existence
- Unlimited liabilities
Further, proprietorship as a kind of business is not considered trustworthy anymore. One Person Company (OPC) is a solution for all the above problems.
OPC is superior to the sole proprietorship business because it is very easy to define the rules and regulation in company and interests of outsider parties are duly protected by the regulatory authority. And, normally people prefer to deal with incorporated bodies such companies as compared to sole proprietor business or partnership firm. From a funding point of view, investors like to invest in the company type of structure.
Some of the features of OPC
- OPC offers a separation between ownership and management.
- There are very less compliance in OPC being the company structure.
- It is easy to raise funds through banks and financial institution
- It is also very easy to convert the business from sole proprietor to private limited company.
There is a misconception about the OPC registration is that there can be only one director in the company but the fact is OPC can also have the same number of directors as applicable in the other companies structures.
Points of comparison between Sole proprietorship and One Person Company
- Under the sole proprietorship there is no separation of ownership and management whereas under OPC ownership and management can be separated.
- OPC allows the limited liability to the sole owner whereas liability under the sole proprietorship business in unlimited.
- OPC can attract investments from the investor whereas nobody shows interests in the sole proprietorship business model.