What is a One Person Company?
The only avenue available to a single businessperson to register his or her business was to opt for a sole proprietorship. In recent years, a second option has been added. A-One Person Company can be registered when there is only one owner of the trade. A-One Person Company (OPC) is best suited for people who wish to be sole entrepreneurs. While even a sole proprietorship offers the same benefit, unlike a sole proprietorship, an OPC offers limited liability and also a separate entity status, along with a better standing in the market (increased trust and respect).
Advantages of One Person Company:
The concept of OPC is quite revolutionary. It gives the individual entrepreneurs all the benefits of a company, which means they will get credit, bank loans, and access to the market, limited liability and legal protection available to companies.
1. Safety Net
According to the Companies Act, in an OPC, the liability of the single shareholder is limited to the unpaid subscription money in his/her name. This means that his/her personal property is completely safe from creditors of the business.
The Companies Act also provides for a person, nominated by the stakeholder, to take over the reins of the company in the event of the death or inability of the said stakeholder. This allows the OPC to have a continuous life, beyond that of the founding director.
3. Market Value
As the OPC is registered under the Act, it enjoys the same privileges that come with a firm being listed as a private limited company.
4. Easy Credit Facilities
The legality of this type of business and also the perpetual succession clause only makes it popular among banks and financial institutions.
5. Easier Return Filing
While it is mandatory for an OPC to get its accounts audited and file requisite annual returns, the same can be easily done with the signature of the director; the need for a company secretary’s signature is not mandatory.
6. Easy Compliances
Among advantages, one can say that an OPC is free from stringent legal compliances such as board meetings, financial statement inclusions, quorums, mandatory Rotation of an auditor.
Disadvantages of an One Person Company:
1. Tax Rate
Since the firm is treated in the same way as a private company, the tax slab applicable is the same. That would mean an OPC would have to pay 30% tax on all profits. There are no exemptions.
2. Need for Change
An OPC will only support small businesses. If turnover crosses Rs. 2 crores, on average, for three consecutive years, the OPC must be converted to a private limited company, public limited company or LLP.
3. Only One
A person can only register only one OPC, until and unless it loses its status. This is bound to affect serial entrepreneurs.
Restrictions on One Person Company:
However, there are also some restriction and terms imposed on an OPC. These are as follows:
- Only a natural person who is an Indian citizen and whether resident in India or otherwise
- shall be eligible to incorporate a OPC;
- shall be a nominee for the sole member of a OPC
Explanation I. “ – For the purposes of this rule, the term “resident in India” means a
person who has stayed in India for a period of not less than one hundred and twenty days during the immediately preceding financial year.
- A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a OPC
- Where a natural person, being member in OPC in accordance with this rule becomes a member in another such Company by virtue of his being a nominee in that OPC, such person shall meet the eligibility criteria specified in sub rule (2) within a period of one hundred and eighty days.
- No minor shall become member or nominee of the OPCor can hold share with beneficial interest.
- Such Company cannot be incorporated or converted into a company under section 8 of the Act.
- Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporates.