Disadvantages of OPC

OPC has some drawbacks on account of constraint conversion, restriction of doing some business activities, ownership limitation, restrict foreign investment.


Drawbacks of One Person Company

Every business entity has its own pros & cons which pave the way to choose the right form of entity for the business. One Person Company also has its disadvantages. Following are the some drawbacks of the OPC:

  • Ownership Limitation

    As per the provisions of the Companies Act, 2013 one member cannot be an owner in more than one such type of company and also cannot become a nominee in more than one such company.

    The member who is incorporating the OPC must be eligible to do so that means he should be an Indian citizen and resident of India.

  • Constraint Conversion

    An OPC can be converted into any form of business entity except section 8 company of the Companies Act, 2013. The voluntary conversion of OPC is possible but with a condition i.e. OPC cannot convert before two years from the date of incorporation.
  • Cease to be an OPC

    OPC will loosen its status once its cross the threshold limits (paid up share capital) that means compulsory conversion of OPC into private or public company subject to the threshold limit. If paid up share capital of OPC exceed the limit of Rs.50 lacs or average turnover has exceeded the limit of Rs.2 crores then within the period of six months from breaching the threshold limit, OPC has to be compulsorily converted.
  • No Foreign Participation

    Foreigners and NRIs are not allowed to form One Person Company in India as their subsidiary. OPCs are not allowed like in private companies 100% FDI is available under the automatic approval. To bring the foreign investors OPC will have to change its legal status to a private company.
  • Restraint the growth

    One Person Company is suitable only for small and medium size companies. Such form of company restraint the growth for the large businesses because you cannot increase the paid up share capital or average annual turnover beyond the threshold limit.
  • Restrict Business Activities

    OPCs are restricting of doing some business activities which includes non banking financial investment activities, investment in securities of any  body corporate.
  • High Tax Liability

    The concept of OPC is recognised only in the Companies Act, 2013 not in the Income Tax Act, 1961. Hence, for tax purpose the same tax slab is applicable on One Person Company which is for private limited companies which creates the heavy financial burden on OPC as compared to others.


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