Difference between One Person Company and a sole proprietorship

One Person Company (OPC) a separate legal entity with just one member. Unlike a private limited company which requires minimum 2 shareholders and 2 directors, an OPC can be formed with only one shareholder.

OPC is registered under the Companies Act 2013 with the Ministry of Corporate Affairs. Do not get confused with a sole proprietorship. Sole Proprietorship is not the same as One Person Company.

One Person Company Vs Proprietorship Concern

One Person CompanySole Proprietorship
Separate Legal entityNot a Separate Legal Entity
Limited LiabilityUnlimited liability
Perpetual successionNo perpetual succession
Registration requiredRegistration not required
Financing depends on the credit record of the OPCFinancing depends on the credit record of the owner
Repayment of Loan is not the sole responsibility of the OPCRepayment of Loan is the sole responsibility of the of the owner
Income Tax is 30% of profitsIncome Tax rate is between 5% – 30% depending on the income tax slab the proprietor falls under

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., 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 dissolution of the existing partnership whereas in a private limited company, one shareholder may transfer his shares to another, but the company still continues to operate.

Other the other hand, sole proprietorship is an entity whose existence depends on the life of its members and death or any other contingency may lead to the dissolution of such an entity.

You can choose between sole proprietorship and OPC depending on your requirements, type of business and the risk involved in the business.

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