A Sole Proprietorship firm is also known as a sole trader or simply a proprietorship. It was a popular form of business prior to the introduction of One Person Company due to its simplicity, ease of setup, and nominal cost. It is a kind of business set up in which a single person owns the business and is solely responsible to pay all the debts of the firm. One of the biggest disadvantages of this type of company is that the identity of sole proprietor is not distinct from the identity of the firm thus the liability of the owner is unlimited.
To overcome the drawbacks of sole proprietorship the concept of One Person Company was introduced through Companies Act 2013. One Person Company contains the features of both the sole proprietor and the company. This concept was introduced to help the sole proprietor in fulfilling their desire to start a business with limited liabilities. One of the major benefits of the one person company over the sole proprietor company is that the one person company formed is a separate legal entity from its members and the liability of the owner is limited.
Difference between Sole Proprietorship and One Person Company is as follows–
|Basis||One Person Company||Sole Proprietorship|
|Liability||The liability of the member is limited to his share.||The liabilities of the members are unlimited.|
|Legal identity of entity||It has a separate legal identity from its members.||It is not considered as a distinct identity from its members.|
|Registration||OPC can be registered under Company Act 2013.||Registration of sole proprietorship is not compulsory.|
|Taxation||OPC will be taxed in the same way as a company.||It will be taxed as an individual.|
|Existence||An OPC does not get dissolved with the death or retirement of the member.||The life of this form of the company comes to an end with the retirement of the sole proprietor.|
Maximum number of members
|It is required to file annual returns and get its accounts audited.|
An OPC will be converted into private limited company if has an average turnover of over Rs. 2 crore for three years or a paid-up share capital of over Rs. 50 lakh.
It can have maximum 2 members.
Foreign ownership is allowed in case one member is director and the other is nominee. However both director and the nominee cannot be the foreign citizens.
|It is required to get its account audited only if its turnover exceeds the threshold limit as per income tax act.|
A sole proprietor will always remain a sole proprietor irrespective of its turnover.
It can have only 1 member.
Foreign ownership is not allowed.