Is One Person Company right for you?

The concept of One Person Company or OPC is new to the world of business which was first recommended by the expert committee of Dr. JJ Irani in 2005 and is introduced by the Companies Act, 2013. It has given a platform to the individuals starting their new venture with a structured business.

What is a One Person Company(OPC)?

The OPC is a hybrid form of business which combines features of Sole Proprietorship and Company. A One Person Company needs only one member who is the sole owner/director of the company as well as being a shareholder. In an OPC the liability is limited to the company and not the members of the company giving the benefit of a Limited Company. Hence, why share the cake when you can own it all.

Who can register a One Person Company?

Indian Residents & Citizens who has a minimum paid up capital of Rs. 1,00,000 and has one person who is the sole owner/director and also the shareholder of the Company can register a One Person Company with the MCA(Ministry of Corporate Affairs). The Foreigners and NRI's are not allowed to formulate an OPC in India.

Is One Person Company a right choice for you?

According to the Companies Act, 2013 it is mandatory to convert a One Person Company into a Private Limited if the paid up capital exceed Rs. 50 Lakh or if the annual turnover is more than Rs. 2 crore. An OPC is a blend of Private Limited and Proprietorship and is beneficial for the small scale firms. OPC is disadvantageous in terms of tax as the base tax rate is around 30% whereas a proprietorship tax is based on individual owning business. OPC however, is a new business forum to bring about transparency, accountability and corporate in small business by a single individual. However OPC offers several benefits as well as has certain limitations which might lead you to confusion.

Advantages of setting up an OPC

An OPC has certain benefits for the Indian Entrepreneurs aspiring for business in India and hence it is recommended to setup a One Person Company. Also because it has the combined advantage of the Companies and the Proprietorship firm. The following are the reasons for setting up an OPC;

  • A One Person Company is applicable for the provisions of a Private Limited Company hence has exemptions in the compliance related burden.
  • A proprietorship is usually less organized, the OPC turns the small unorganized business into an organized form of business which makes it favorable for funding and banking facilities.
  • The liability is limited to the company and not the directors or shareholders, this is certainly the fundamental reason to incorporate an OPC. In sole proprietorship the personal assets are at risk during time of failure which is not the case for a One Person Company.
  • The requirements of the OPC is very minimal that is minimum one shareholder & one director wherein even one person can be both shareholder and director, minimum one nominee and a paid-up capital of Rs. 1 Lakh. In the naming the letters "OPC" needs to be suffixed so that it separates it from the other company forms.
  • In case of a mishap of the sole person the nominee director is to be responsible for managing the affairs of the company till the shares are carried on to the legal heirs of the demised members.
  • It is easier to get funding and loans from the banks in case of OPC.
  • The single owner has the complete control over the company and can appoint a maximum of 15 directors without giving shares to them.
  • Management is easy.
  • Incorporation is also very simple and less time consuming.
  • There are certain Tax benefits and it is flexible.

Restrictions of a One Person Company(OPC)

There are certain don'ts/restrictions for a OPC and they are as follows;

  • A person who is associated with one OPC is not permitted to incorporate more OPC or even be a nominee in more than such a company.
  • A minor is not allowed to be a member/nominee of the OPC and also can't hold shares with beneficial interest.
  • OPC is not applicable for getting incorporated or converted under section 8 of the Act.
  • The Non-Banking Financial Investment activities can't be carried out by any an OPC including the securities of any Body corporate.
  • A Foreign National/NRI cannot be part of an OPC.
  • A One Person Company cannot be converted voluntarily to any other form of company unless it completes 2 years from the date of incorporation, except the threshold limit which is the paid-up capital.

What is the major limitation of an OPC?

A One Person Company needs to be converted to a Private Limited Company based on the following situations;

  • If there is an increase in the paid up capital of the One Person Company and it exceeds Rs. 50 Lakhs
  • It is also when the average annual turnover during the period of initial three consecutive financial years is more than Rs. 2 crores.

If an OPC fulfils any of the above two situations, it is must to convert the OPC to a Private Limited Company or Public Company. This has to be done within six months.

Recommendation: One Person Company is a miniature of Private Limited Company with major restrictions and limitations. It doesn't allow foreign promoters and also is mandatory to be converted to Private Limited after certain conditions are met. Keeping all of the above in concern, QuickCompany always recommends to Incorporate a Private limited Company instead of an OPC for a long term successful business.

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