The concept of ‘one-person army’ in the form of the traditional sole proprietorship form of the business structure is more predominant in the market than other forms of business. The reason behind that is, it can be formulated easily, and it is also free from making any additional compulsory compliance.
Many professionals and shopkeepers such as CA, CS, Advocates, doctors, consultants, architects, and others are running their profession or business with proprietor firm registration. If you are an aspiring or existing entrepreneur who would like to choose whether to switch to a one-person company (OPC) structure or not, then this blog would surely help you.
Few points of introduction of OPC (one-person company) in India.
It offers you autonomy and quick business decision-making power and you will not be answerable to anyone. You will be your own boss and can even recruit assistants for delegation of work. Nonetheless, there are some intrinsic restrictions of working as a sole proprietor for instance;
– Lower brand value.
– Unlimited liability.
– Funding limitations from banks and financial institutions and many more.
That’s why to resolve these challenges of a traditional form of a sole entity form of a business structure, the GoI (government of India) has unveiled a new form of business structure titled ‘one-person company’ (OPC) with the bringing of the companies act, 2013.
The companies are primarily regulated by the ministry of corporate affairs (MCA) by imposing the companies’ provisions, 2013 that replaced the years-old erstwhile companies act, 1956. This innovative concept of ‘one-person company’ (OPC) was not there in the earlier version of the companies act, 1956. It was first brought into place with the coming of new corporate legislation in the country.
The government intends to bring the traditional small owners. They are currently working in the unorganized sectors in an organized form of business to increase the corporate governance and inculcate formal business structure.
One-person company (OPC) offers the benefits of brand image, limited liability, and access to bank funding and along with that basic retaining characteristic of the one-person show because, in the one-person company (OPC), there will be only one person who will control the company and can recruit employees and directors for better management.
Here are the points which would make the distinction clearer betwixt OPC and sole proprietorship.
|Regulation||General||As per the companies act, 2013.|
|Structure type||Plain||Hybrid (proprietorship + company)|
|Business registration||Not compulsory, nonetheless, sectoral licenses are needed as might be applicable to a specific business.||Compulsory registration with MCA.|
|Name||Usually the proprietor uses his/her own name.||Should include the word OPC to differentiate itself from other entities.|
|Entity||No separate legal entity.||Separate legal entity.|
|Nomination||Optional||Compulsory nomination of one natural person to set up an OPC.|
|Directors||Not applicable||Minimum one and maximum 15 unless increased.|
|Type of structure||Sole form||Corporate structure|
|Ownership||Individual proprietor||Individual shareholder|
|Management||It is the whole and sole person who manages the firm. Nonetheless, he/she might also recruit employees for support.||Directors collectively known as board of directors.|
|Charter documents||Not specific||MoA and AoA|
|Bank funding||Rare chances||Feasible and higher chances than the sole proprietorship|
|FDI (foreign direct investment)||Yes||No|
|RoC compliances||Not applicable||Applicable but less in comparison to pure pvt ltd or public company such as big companies|
|Statutory audit under the companies acts||Not applicable||Compulsory|
|Income tax compliances||Simple but will be taxed as individual||More compliances because taxed as a company|
|Indirect tax compliances||Relies on the various factors||Relied on the various factors|
|Goodwill||Not impressive because no separate legal status||Good as an OPC has separate legal status and is taken as a company under companies act, 2013|
|Transparency||Rarely||Yes because of regular disclosure with regulatory authorities|
|Conversion||Yes||Should convert in to either pvt ltd or limited company after crossing the threshold limit|
|Expansion||Less chances of scaling||Can convert into big pvt ltd or ltd company voluntarily subject to specified regulations|
|Liquidation||On owner’s demise||Via legal process only|
|Cost of formulating||Nominal||Greater value over sole proprietorship but not expensive|
|Name protection by MCA||Not protected||Protected by MCA|
|Recommended for||Unorganized sector||For every entrepreneur who wants to do business in organized form and intends to take benefits of corporate structure|
From the above-mentioned distinction you would be able to make the best suitable decision for yourself.