What is the difference between OPC and Sole Proprietorship?

Last Updated at: Nov 12, 2020
The recent Companies Amendment Bill, 2020 has proposed amendments to certain provisions of the Companies Act. In one such proposal, the applicability of section 446B (relating to ‘Lesser penalties for small companies & OPCs) is due to be extended to all provisions of the Act. 


Usually, business owners who have just started their business are confused in choosing the right business structure for registering their business. OPC and sole proprietorship seem to be almost similar but there are certain differences that are listed below. You can choose the right business structure based on the above inputs.

If you’re starting a business, keen on having full control, you have two options to choose from: a one-person company and sole proprietorship. As you would expect, they both have their advantages and disadvantages and you can’t say, without exception, that one is better than the other. The short answer is that one-person companies are better for mid-sized businesses, while sole proprietorships are better for small businesses. So let’s examine the differences between the two to find out which suits your business.

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Promoter’s Liability
A sole proprietor is completely unprotected as his liability is unlimited. This means that if the business is unable to repay its debts, the creditor can have your personal assets sold off to recover the amount. This can happen because a sole proprietorship is not a separate legal entity from its owner. On the other hand, the director of a one-person company is fully protected in such a situation. As the entity is legally distinct from its director, his/her personal assets are always protected. Therefore, if your business hasn’t much money to risk, a sole proprietorship might do; if the opposite is at all true, go for a one-person company.

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Start-up Costs
A sole proprietorship is naturally the cheaper, given that there is no registration involved. If you, as an individual, get VAT registration and license under Shops & Establishments Act, you’re a sole proprietor. The costs of these registrations are small, usually around Rs. 5000 each. A one-person company is in addition to these above registrations, which are compulsory if you are a manufacturer or trader (if you are in the services business, you would need service tax, no VAT, registration). This would cost around Rs. 15,000.

One Person Company Vs Sole Proprietorship (1)

Tax Advantages
Neither has any tax benefits, so let’s leave those aside. With an OPC, you need to pay taxes at a flat rate of 30% on profits. You need to pay Dividend Distribution Tax and Minimum Alternate Tax. Sole proprietors must pay at the individual slab rate, but do have some conveniences; for example, if your turnover is less than Rs. 1 crore, you can declare profits at a flat 8%.

Annual Compliances
There’s no question here: sole proprietorships need only file income tax returns and maintain their books, while one-person companies must additionally have their books audited, do annual filings and inform the RoC in case of any changes in its structure. One-person companies will spend at least Rs. 10,000 annually on compliances.

Ultimately, you don’t have a choice between the two, really. It depends on your business. If you’re a one-man business with little risk, be a sole proprietor. But if there’s risk and you would like a more formal set-up, register a one-person company.

The knowledge about the benefits and restrictions of OPC and sole proprietorship gained from the above article would be of great help for start-up owners. A professional can offer you the right advice on choosing the right business structure for your business. Make sure to make the choice based on the nature of your business.