One Person Company (OPC) is a separate legal entity with just one member and only one shareholder. OPC is registered under the Companies Act 2013 with the Ministry of Corporate Affairs.
Sole Proprietorship is not as same as One Person Company. a sole proprietorship company is a business that is owned and governed by one person. It is a type of unregistered business entity that is owned, managed, and controlled by one person and is the most common type of business in India which is used by many small and micro-businesses operating in the unorganized sectors.
Let us report on some differences between a One Person Company and a Sole Proprietorship Company
- A sole proprietorship undergoes “unlimited liability” which means that if the business suffers losses, the assets of not just the company, but also the owner, may be used to pay off this debt. On the other hand, An OPC is a separate legal entity and hence the owner has limited liability if the business suffers a loss.
- For the purposes of succession, an OPC requires having a nominee be allotted by its member. The nominee should also be a natural-born citizen and resident of India. The nominee shall, in the event of the death of the member, become a member of the company and shall be responsible for the running of the company. However, In the case of a sole proprietorship, succession can only take place through the implementation of the Last Testament and Will, which may or may not be challenged in a court of law.
- Entrepreneurs who register as an OPC can run the business without worrying too much about litigations and liabilities getting attached to the personal assets. One Person Company has a separate legal identity from its shareholders i.e., the company and the shareholders are two different entities for all purposes. For example, if Sam invested Rs 100,000 to start a One Person Company. The liability is his investment of Rs 100,000. In other words, his potential loss cannot be beyond Rs 100,000. On the other hand, proprietorship does not have a separate legal identity from its members.
- The existence of One Person Company is not dependent upon its members and hence, it has a perpetual succession i.e., the death of a member does not affect the existence of the company For example, in a partnership firm, a change in the membership leads to the dissolution of the existing partnership whereas in a private limited company, one shareholder may pass his shares to another, but the company still continues to function. Other the other hand, a sole proprietorship is an entity whose operation depends on the life of its members, and death or any other contingency may lead to the termination of such an entity.
You can choose between a Sole Proprietorship and OPC depending on your requirements, type of business, and the risk involved in the business.