OPC has some drawbacks on account of constraint conversion, restriction of doing some business activities, ownership limitation, restrict foreign investment.
Restrictions of One Person Company
Starting any business venture is ambitious yet a risky responsibility. One must fully analyse his options and study what is the most suitable structure for his business be it one person company or sole proprietorship or a private limited company as all of the above have their own pros and cons. These compliances have been introduced to promote business enterprise owned and operated at small or mid-level to help in growing country’s economy and employment services. Hence the person should be thorough with his choice
Disadvantages of One Person Company
- Taxation: Both One Person Company and private companies are put under the same tax slab by the income tax department. As One Person Company has become a fully corporate entity it does not have any tax relaxation as has to pay a flat 30% income tax rate which is higher as compared to income tax slab rate for the individual which lies between 10% - 30 %.
- Ownership: the main feature of One Person Company is that it needs a single member who is the sole shareholder and sole director which limits the owner to invest in shares and securities of other corporations. He cannot offer part-time ownership to any other person and is solely responsible for any kind of disputes or loss suffered by the company.
- Nominee: in One Person Company apart from having individual ownership it is required by the owner to appoint a nominee who shall be held responsible for taking charge of the company after the death of the owner. The selected nominee can choose to withdraw anytime which can create complications as a new nominee has to be appointed with fifteen days which requires amending the memorandum and other forms.
- Nationality: One Person Company only allows a permanent resident of India with an Indian nationality to form the company along with the nominee who does not allow any foreign investment or foreign MNC to invest their subsidiaries in one person company.
- Small business: one person company has been formed to encourage only small business which cannot exceed the authorised capital set at 50lacks beyond which it becomes mandatory for the company to convert itself to a private limited company. Hence limiting its funding.
- Conversion: To convert One Person Company to a private limited company the time period required is a minimum of two years.
- Compliance Prices: As the company is registered with the registrar of the companies it is required to pay fees to the CA or CS and other government charges. As it fills the audit and other compliances the yearly cost also increases
Is one person company same as a private company?
One Person Company and private limited companies aim at providing legal protection to small unorganised businesses to be legally authorised. Apart from having common similarities, they both have certain differences
- In one person company the director or the shareholder is a single member whereas a minimum of two members are required to form a private limited company
- One Person Company does not allow any foreign investor to invest whereas private company allows 100% foreign development investments.
- Private companies need to hold a minimum of 4 board meetings each within spam of 120 days whereas One Person Company can meet twice in a year.
- Both the companies have to fill audits and taxes at the same rate and are governed by the company act 2013
- There is a mandatory conversion for One Person Company to a private limited company after its annual turnover exceeds two cores where there is no such compulsion for private companies.
Thus we conclude that one person company was introduced to help the country’s growth by giving opportunities to generate employment and also help in economic development. The one person company was created to simplify the legal process for young entrepreneur venturing into new businesses as it has been very successful in western countries like US and UK. This has been welcomed with open arms in our country as well and we look forward to its outcomes and impacts and hope that it proves to be a successful concept.
- What is One Person Company?
- Is One Person Company right for you?
- Advantages of OPC
- Personified Features of One Person Company
- FAQs - Company registration in India
- Private Limited Company Tax Slab [2019-20]
- One Person Company
- OPC vs. Private Limited Company
- Private Ltd vs Sole Proprietorship
- Sole Proprietorship in India