OPC is a composite of sole proprietorship and limited company. It provides limited liability to its shareholders to the extent of the unpaid amount of its share.
As per the section 2(62) of the Companies Act, 2013, One Person Company is a company which has only one person as a member. The name of the business entity itself consists the one member only.
Earlier the company means an association of members with limited liability. The disadvantages of sole proprietorship and partnership forms of organisation led to limit the growth of the corporate entity. These restrictions and unlimited liability discourage the individuals from expanding the business and taking the risky decisions.
Now, with the introduction of the new form of business entity ‘One Person Company’ risks are eliminated. Unlike in any other business entities, in One Person Company there is only one member required who deals with the situation when there will be lifting of corporate veil.
Limited liability of One Person Company
The most significant reason for shareholders to incorporate the One Person Company or Single Person Company is certainly the desire for the limited liability. The shareholders of the company have the limited liability to the extent of unpaid amount of their shares. Hence, in case limited company suffers some losses, shareholders are only liable to pay the unpaid amount of the shares held by them. But in case of unlimited company, the whole loss incurred by the shareholders.
The Companies Act, 2013 introduced the One Person Company which has only one member as the name of the entity itself suggests. In OPC, legal and financial liability is limited to the company, not to the members as One Person Company has a separate legal entity from its members.
In One Person Company shares are owned by the sole member and directors of the company. But in case where no director is appointed and the sole owner himself acted as a deemed director of the company, all the shares are owned by that single person. But it doesn’t mean that corporate personality will be disregarded because there is difference between the corporate obligations and personal obligations of the sole owner.
On the contrary, in case of tort liability the feature of limited liability is not applicable. If a sole shareholder affects an individual by the tort then he cannot conceal the liability in the veil of limited liability. The advantage of limited liability is for the contractual obligations not for the tort liability.
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- Lifting of the Corporate Veil
- An Introduction to Companies Under the Indian Company Law
- Features of a Private Limited Company
- A Detailed Classification: Types of Companies in India
- Essential Features of a Company
- One Person Company
- What Does it Mean to be a Limited Company?
- LLP vs OPC
- Personified Features of One Person Company
- Various types of Companies you can register for your Business