One Person Company: How it is distinct from a Partnership Firm

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One Person Company or OPC is a type of a proprietorship firm where a single person starts a company. The concept of one Person Company has recently come up as a strong advancement over the concept of the sole proprietorship as this concept offers full control and authority of the company to a single person and also limits its liability and duties towards the business. Lastly, a one-person company is governed by the Companies Act, 2013.

In Contrast, there is one more type of business structure prevailing in India, which is easy to establish and require only a minimum of two people. This concerned business structure is known as the Partnership Firm. Further, in India, very few requirements are to be complied with for obtaining registration of a Partnership Firm. Furthermore, the concept of partnership firm is governed by the Partnership Act, 1932. Hence, the partnership firm acts as a relationship between the two more individuals who have agreed mutually to carry on a business for earning a profit, and these individuals are known as the partners of the partnership firm.

What is the Nature of a One Person Company?

One person company (OPC) can only be registered as a Private Limited Company. Hence, all the provisions applicable to a private company will also prevail on a One Person Company (OPC) unless otherwise it is expressly excluded in the concerned Act or rules made there under. Further, a One Person Company can easily be converted into a Private Limited Company or a Public Company. It is significant to note that the word “One Person Company” must obligatorily be mentioned at the end of the company’s name.

What is the Nature of a Partnership Firm?

When two or more individuals join hands to commence a business and also to share its profits earned and a loss incurred is known as a Partnership Firm. Further, section 4 of the Indian Partnership Act, 1932 defines the term partnership as a relation between two or more persons who have agreed mutually to share the profits earned of a concerned business carried on by all or any one of them acting for all. Further, the partners are those people who have mutually decided to enter into a relation, and moreover, it is significant to note that collectively these partners are known as a Firm.

Who is eligible to start a One Person Company?

Any person who is a resident of India, i.e. he has stayed in India for a period of 182 days in the immediate previous financial year. However, one such person cannot start more than one OPC (One Person Company) or become the nominee for more than one of such a company.

Who is eligible to start a Partnership Firm?

Any two people can run a partnership business under an agreement known as the partnership deed. Further, it is not compulsory for a partnership firm to register the partnership deed. However, it is always advisable to register a partnership deed for the purpose of increasing its evidentiary value.

What are the Privileges offered to a One Person Company?

Following are the privileges and benefits of OPC registration

  1. One Person Company offers new business ideas regarding the start-up business.
  2. The most important benefit of obtaining OPC registration is that it offers limited liability to its partners, which will influence many people to start their own One Person Company.
  3. Further, the One Person Company need not bother about various compliance unlike other Companies
  4. One Person Company needs a minimal amount of capital, to begin with. Further, it can also raise its capital from other sources like the venture capital, other financial institution, etc
  5. Lastly, the requirement of the compulsory rotation of the auditor so appointed after the expiry of the maximum term is not applicable in the case of the One Person Company.

What are the Features of a One Person Company?

Following are the features attached to the concept of a One Person Company –

  1. Private company – According to section 3, subsection (1) clauses (c) of the Companies Act, 2013, a single person can start a company with a lawful purpose. Further, this section describes One Person Companies as private companies.
  2. Single-member – One Person Company can have only one individual acting as a shareholder or member, unlike the other private companies.
  3. Nominee – A unique feature of One Person Company is that differentiates it from other kinds of business structure is that of a sole member of the company concerned. Further, the member appointed has to mention a person as his nominee while registering the company.
  4. No perpetual succession – Since there is only one person acting as a shareholder or a member in the concerned One Person Company, his death will result in the appointment of a nominee. This particular feature does not exist in other types of companies as they follow the model of perpetual succession.
  5. Minimum one director – Further, the OPCs are required to have a minimum of one person as the company’s director. Furthermore, this business model can appoint a maximum of 15 directors.
  6. No minimum paid-up share capital – The Companies Act, 2013 has not specified any amount as the minimum paid-up capital for starting a One Person Company.
  7. Special privileges – One Person Company enjoys the benefit arising due to several privileges and exemptions granted under the Companies Act, 2013. Further, other types of business models do not possess such kind of privileges and exemptions.

What are the Features of a Partnership Firm?

Following are the features annexed with the concept of a partnership firm –

  1. Two or more Persons – A minimum of two persons are required to pool in resources to commence a partnership firm. Further, the Partnership Act, 1932 does not prescribe any maximum limit for the appointment of partners. However, the Companies Act, 1956 states down that any association having more than ten persons in case of the banking business and more than twenty persons in other types of business is illegal unless the concerned business is registered as a joint-stock company.
  2. Agreement – A partnership comes into existence through an agreement among the persons who are competent enough to enter into a contract. For example – Minors, lunatics, and insolvents, etc. are not eligible and competent to enter into a contract. Further, the concerned agreement may either be oral, written or implied. Furthermore, it is significant to note that the actual purpose of the agreement is to create transparency among the affairs of the business.
  3. Lawful Business – The partners of the firm can take up only the legally blessed activities. Further, any illegal and unlawful activity carried out by the partners does not enjoy the benefit of legal sanctions.
  4. Registration of a partnership firm – Under the Partnership Act, 1932, there is no mandatory obligation on the partners to get their partnership firm registered. Further, in most of the Indian states, registration of a partnership is a voluntary process. However, if in case the firm is not registered, then it cannot enjoy certain legal benefits. Following are the effects of non-registration of a partnership deed –
  • The firm concerned cannot take any legal action in the court of law against any other party for the settlement of claims
  • Further, in case of any dispute among the partners concerned, it is not allowed to settle the disputes by way of the court.
  1. Profit-Sharing – The partnership agreement must prescribe the manner of sharing the profits and losses among the concerned partners. Further, it is significant to note that any educational institutions, a charitable hospital run jointly by the like-minded people are not to be considered as a partnership firm since there is no requirement regarding the sharing of profits and losses. Furthermore, the mere sharing of business profits is not conclusive proof regarding the existence of a partnership. That means a group of employees or creditors who have agreed to share profits cannot be termed as the partners of a firm unless there is a mutual agreement between the partners.
  2. Agency Relationship – Usually speaking, every partner in the firm is considered as an agent for both the firm as well as for the other partners. Further, the partners concerned have an agency relationship and association among themselves. Furthermore, the partnership business can be carried out either jointly or by one nominated partner on behalf of all. Lastly, any acts done by the nominated partner in good faith and on behalf of the firm concerned are binding on both the firm and remaining partners.
  3. Unlimited Liability – All partners of the firm concerned are jointly and severally responsible and accountable for all activities carried out by the partnership firm. In other words, in the case where the firm’s assets are not sufficient to meet the creditor’s liability, the personal assets of the partners can also be attached in this situation. Further, the creditors can get hold of any one partner, who is financially sound and can get their claims satisfied.
  4. Transfer of Interest – It is significant to note that a partner of a firm is not allowed to transfer his firm interest to the outsiders unless all the other partners have agreed for that unanimously. Hence the partner of a firm acts as an agent and is ineligible to transfer his interest unilaterally to outsiders.
  5. Separate Legal Entity – The partnership firm does not have a separate and distinct personality of its own. Moreover, the business gets terminated in the case of death, lunacy or bankruptcy of any one of the partners.
  6. Mutual Trust and Confidence – A partnership firm is formed around the rule of mutual trust, confidence, and understanding between the partners concerned. Further, each partner is expected to act for the benefit of all. Hence, if the trust is broken and the partners work for their personal purposes, then the firm will get trodden under its own weight.

What are the Benefits of a One Person Company?

Following are the benefits annexed with the concept of the One Person Company –

  1. No Minimum Capital required
  2. Limited Liability
  3. Less Compliance
  4. Continuous Existence
  5. Greater Creditability
  6. Easy to set up and maintain
  7. No Legal Disputes

What are the Benefits of a Partnership Firm?

Following are the benefits annexed with the concept of a Partnership Firm –

  1. Easy Formation
  2. Larger Resources
  3. Flexibility in Operations
  4. Better Management
  5. Sharing of Risk
  6. Protection of the Interest

What are the Mandatory Requirements regarding the Registration of a One Person Company in India?

Following are the requirements which are needed to fulfilled subsequent to obtaining OPC registration –

  1. At least one Board Meeting to be conducted in each half of the calendar year and moreover, the time gap between the two Board Meetings must not be less than ninety days
  2. Proper maintenance of the books of accounts
  3. Statutory Audit of the Financial Statements
  4. Filing of the business income tax returns (ITR) every year prior to 30th September
  5. Filing of the Financial Statements in Form AOC-4. The Financial statements are to be submitted together with the Annual Return in Form MGT-7. The concerned annual return is to be submitted to the Registrar of Company

How a One Person Company is Distinct from a Partnership Firm?

Particulars

One Person Company

Partnership

Governing Body

One Person Company (OPC) is governed and administered by the Companies Act, 2013.A Partnership firm governed by the Indian Partnership Act, 1932.

Registration

Registration of a One Person Company is compulsory with the Ministry of Corporate Affairs (MCA) as per the provisions of the Companies Act, 2013.A Partnership firm may or may not be registered. It is not obligatory, but optional for the partners to get the partnership firm registered.
Name ApprovalThe name of the One Person Company needs to get approval from the Ministry of Corporate Affairs (MCA), and moreover, the acronym ‘OPC’ must be mentioned with the name of the company.In the case of the Partnership Firm, there is no as such requirement regarding taking any prior approval for the proposed name from the registrar.
Legal Separate EntityOne Person Company (OPC) has a separate and distinct legal entity from its member. Thus, the personal assets of the member concerned are not liable for any loss incurred by the business.Partnership and all its partners concerned are considered as a single entity. Thus, the partners are wholly responsible for the liabilities and obligations related to the partnership.
LiabilityThe sole owner enjoys the benefit of limited liability to the extent of the value of the shares in the company.In contrast, the partnership, partners suffer from the disadvantage of unlimited liability, which means that liability will extend to the personal assets of the partners.
Number of membersOnly one member is required to form a One Person Company who mandatorily has to be a resident of India.Minimum number of partners required – two

Maximum number of partners required – twenty

Common sealIn the case of One Person Company, two rubber stamps are needed. Out of both, one is required to prepare documents regarding the name of the company, and the other one is required with the designated person.In the case of the partnership firm, there is no regulation and requirement of the common seal.
DIN (Director Identification Number)In the case of an OPC, every director is needed to obtain a DIN (Director Identification Number).No partner is required to obtain the DIN
(Director Identification Number).
DSC (Digital Signature Certificate)For filing the online e-forms with the Ministry of Corporate Affairs, the sole owner is required to obtain a digital signature.In the case of the partnership firm, there is no such requirement to obtain a digital signature certificate by any designated partner.
AuditingStatutory Auditing is compulsory and mandatory within the prescribed time as per provisions.Except for the concept of tax auditing, there are no provisions regarding the audit of accounts.
Annual FilingCompulsory Filing of both the financial statements and annual return in case of the One Person Company.Not requirement regarding the filing of the annual return in partnership.
Admission of minorIn One Person Company, minors cannot be appointed either as the director, nominee or the sole shareholder of the company.In the case of a partnership firm, minors can be admitted for the benefit of the firm.
Tax on profitIn the case of One Person Company, dividend distribution tax (DDT) has to be paid on the dividend.There is no need regarding the payment of any tax on the profit distributed among the partners.

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