Which one to choose and why?

Introduction

Proprietorship and OPC are two different business structure with its merits and demerits. OPC stands for One Person Company which means it encourages single entrepreneurs to run his/her own ventures; whereas Proprietorship means a firm run single handedly but not a separate legal entity. When one wants to run own business then it is difficult but important to choose right act because it can not change within short span or when required. 

 

Proprietorship Firm

 

It is a business entity formed within the name of 1 person. That person owns the business, manages it and controls its various operations. it's often created by an individual who wants to start a business without browsing various legal formalities. the sole proprietor must be a Citizen of India and a Resident of India. The difference between the owner and this business form is next to negligible. At now, the owner may decide to absorb one or more partners to form sure that the business continues to flourish. If you own a sole proprietorship, you're entitled to all or any or any profits and are responsible for all of your business’s debts, losses, and liabilities.

 

Advantages of Proprietorship Firm

 

• A sole proprietorship is the simplest and least expensive legal structure to work out. Costs are minimal, with legal costs limited to obtaining the specified license or permits.

• Because you are the only owner of the business, you've complete control over all decisions. You aren’t required to consult anyone else once you bought to make decisions or want to form changes.

• Sole proprietorships don't pay special franchise or corporate taxes. Profits are taxed as income as reported on the owner’s individual tax return.

 

One Person Company (OPC)

 

One Person Company means a company which has just one member. The new concept in business introduced by the govt of India within the sort of OPC for maximization of the advantages of the company sort of business with the cost reduction. All the benefits of the corporate are retained and price of administration is reduced. OPC receives advantages of the company viz. legal entity, transferable ownership and indebtedness alongside that advantage of sole trading concern viz.

 

OPCs are exempted from an annual general meeting of shareholder due to single shareholding. OPC also needn't conduct committee meeting because OPC has just one director. there's no requirement to require concern of a person that helps businessman in taking quick decision. OPC is out there just for small business with a share capital of but Rs.50lacs and turnover of but Rs.2crores. When anybody of those two limits is breached the corporate has got to convert into non-public Ltd. by passing a special resolution in annual general meeting. OPC aimed toward promoting entrepreneurship in India.

 

This is an important concept of 1 Person Company. OPC defines in Companies Act 2013 as a single shareholder holds 100percent shareholding. The act provides that only a natural one that is resident of India and also a citizen of India can form OPC. Rules also specify that at a time one person can form just one OPC. The legislation is obvious on the purpose that OPC comes under the meaning of personal company, with just one member.

 

Advantages of One Person Company (OPC)

 

• Whatever income generated from the only proprietorship business; it belongs to the only proprietor only. Consequently, all the losses incurred by the firm are borne alone by the proprietor.
• Banking and financial institutions like better to lend money to the corporate instead of proprietary firms. In most of the situations, Banks insist the entrepreneurs convert their firm into a personal Ltd. before sanctioning funds. So, it's better to register your start-up as a One Person private limited instead of proprietary firm.
• The liabilities of sole proprietorship business are unlimited. within the event of loss, the private assets of the proprietor alongside the business assets are going to be utilized to discharge the dues of business.

 

What is the difference between OPC and proprietorship?

 

The concept of OPC allows one person to run a corporation limited by shares, and Sole proprietorship means an entity where it's run and owned by one individual and where there's no distinction between the owner and therefore the business. The excellence between both the structures is as follows:

 

· Indebtedness - Fundamentally the essential difference between a sole proprietorship and an OPC is that the way and manner during which the liability is treated in an OPC. OPC is different from sole proprietorship because it's a totally separate entity and OPC is a distinct entity from its promoter. The liability of the shareholder is going to be limited to the unpaid subscription money in his name. On the opposite hand the liability during a sole proprietorship, the person/owner is alone responsible for the claims which can be made against the business.

 

· Income bracket - Though the concept of an OPC has been incorporated within the Companies Act, 2013 the concept of same doesn't exist in tax laws so far, as a result, an OPC is often put within the same bracket of taxation as other private companies. consistent with tax, 1961 a personal Ltd. is under the bracket of 30% on total income with a further surcharge of fifty if the income exceeds 10 million with addition to three of education cess.

 

· Succession - In an OPC there's a nominee designated by the member. The nominee which can be a Natural Born citizen of India and who resides in India. The nominee shall within the event of the death of the member become a member of the corporate and can be liable for the running of the corporate. But within the case of a sole proprietorship, this will only happen through an execution of “Will” which can or might not be challenged within thecourt of law.

 

· Compliances - a 1 Person Company has got to file annual returns etc. a bit like a traditional company and would also be got to get its accounts audited within the same manner. On the opposite hand, a sole proprietorship would only get to get audited under the provisions of Section 44 AB of the tax Act, 1961 once its turnover crosses the certain threshold (at present 60lakhs)

 

Which is better OPC or proprietorship?

 

We cannot decide which is better amongst both of them i.e., OPC or Proprietorship. It varies from your needs towards your business or company and its structure. Following are the factors on which you can decide which side would be better for you-

• Indebtedness Partnership Registration has got to be through with the Ministry of Corporate Affairs (MCA) under the indebtedness Partnership Act, 2008.
• There is no formal registration for Sole Proprietorship.
• The choice of the name provided by a Promoter must be approved by the Registrar of Company. Only names that aren't identical or almost like an existing company or indebtedness Partnership name. Also, the name must not be offensive or illegal. The name of the entity will end with the words “LLP” or “Limited Liability Partnership”.
• Promoters need to choose the name which will be used for the only Proprietorship. The approval isn't necessary for using the name. However, it's good to avoid names that have already been trademarked.
• Limited Liability Partnership has a separate legal entity registered under the LLP Act, 2008. The partners of LLP aren't personally responsible for the liabilities of the indebtedness Partnership.
• Proprietorship isn't recognized as a separate legal entity and thus the promoter becomes personally responsible for the liabilities of a Sole Proprietorship.
• The Partners have indebtedness and are liable only to the extent of their contribution to the LLP.
• The proprietor has unlimited liability and is liable for all the liabilities of the only Proprietorship.

 

Which type of business Cannot be managed under the status of OPC?

 

OPC is suitable just for small business. OPC can have maximum Paid up share capital of Rs.50 Lakhs or Turnover of Rs.2 Crores. Otherwise, OPC got to be converted into Private Ltd Company.

OPC can't be incorporated or converted into Section 8 Company i.e., company with charitable objects, etc. or perform non-banking financial activities, including investment in securities of anybody corporate.

 

Conclusion:

 

This idea of One Person Company is about to arrange the unorganized sector of proprietorship firms and other entities which can be convenient to manage and manage if an equivalent is within the sort of One Person Company. It will also be favourable for enhancing foreign funding from the investors who keen to expand their ventures in India. One Person Company is the next big thing in India, and it'll be favourable for the economic conditions in India through its small to medium-sized entrepreneurship. An OPC will have the accessibility to focus on the markets, streamlining business places during a corporate framework, loans, banks etc. directly, there'll be no middleman conjuring the profits.