The Companies Act, 2013 introduced the concept of One Person Company in India for the entrepreneurs to start their own venture by allowing them to create a single person economic entity. One of the biggest advantages of a One Person Company (OPC) is that there can be only one member in an OPC, while a minimum of two members is required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership (LLP). Similar to a Company, a One Person Company is a separate legal entity from its promoter, offering limited liability protection to its sole shareholder, while having continuity of business and being easy to incorporate.
If you are the only one who wants to start your company and want to avoid the issues of partnership then you must go with One Person Company registration in India. It is one of the business formations introduced to help individuals in running a business.
Following are the Advantages of One Person Company:
- The very first merits of OPC are the difference between Private Limited Companies and OPC is the process of acquiescence or compliance is uncomplicated due to providing the immunity.
- No need to get a partner. Only one member is required to run this business formation.
- If the ownership of company changes, there is hardly any effect on the company.
- Less Investment: To register One Person Company, you need to have a bank account which should have a minimum balance which could be as much less as 5000.
- It promotes the entrepreneurship in an individual. A person who wants to run a business without any partnership, you can apply OPC in India.
- Proprietorship has some issues like owners personal assets are at stake and if any misfortune happens, he needs to bear all the loss while there is nothing like this in OPC registration. Your personal stakes are very much safe like in private limited company.
- But you need to convert the OPC into a private limited company if it exceeds the turnover of 2 crores or paid capital is more than 50 lacs.
- It permits the easy loans available after the incorporation.
- OPC only needs ROC filing.
- The personal assets will also be safe with from others.
On the other hand, OPC or a one-person company is a hybrid form of business mashing the flexibility or a sole proprietorship with separate distinct identity clause of a corporate body.
Following are a few major Disadvantages of incorporating an OPC:
- Suitable only for a fairly smaller form of business since One Person Company registration can have maximum authorized capital of fifty lakhs and its turnover when exceeds two crores needs to be compulsorily converted into a Pvt Ltd invoking the clause of compulsory conversion which would increase the compliances costs. Most of the startups hurry with an OPC and cross the turnover limit within a year.
- Cannot voluntarily be converted to a Pvt Ltd or Public Ltd until two years of the date of incorporation.
- Since an OPC is recognized as a company according to Income-tax Act it would be taxed at a maximum marginal rate of 30% as applicable to Private Limited Companies.
- Limited to only one shareholder, that means you cannot offer part ownership to any other person.
- Not suitable for complex form of businesses like NBFCs nor can be incorporated as a Section 8 company(Company Not for Profit)
- A One Person Company (OPC) cannot raise funds by selling its shares and hence not preferred for startups.
- It increases the compliance cost yearly because audit and other compliance are mandatory irrespective of turnover.
- It cannot be converted into a private company voluntary before two years from the date of incorporation.
End-Note
If your startup is a relatively a simple business model which would sustain within a capital of fifty lakhs or if you are looking for a corporate business form, to begin with, OPC would be a good choice, since there are very fewer compliances to follow, no audit requirements and complete control over ownership.
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