As per the Companies Act 2013, a One Person Company is formed in the same way as a Private Limited Company. This sort of business allows anyone to create a business without having to worry about other shareholders. There are numerous advantages and disadvantages of OPC.
Furthermore, a member is a shareholder or subscriber to its Memorandum of Association. Hence, OPC is a company with one stakeholder or Director. Let’s know about One Person Company before moving towards the advantages and disadvantages of OPC.
On this page
What are the characteristics of One Person Company?
- An OPC should have a legally registered name, and whenever the company’s name is referenced the word One Person Company must be used.
- The form provided in the OPC Memorandum must specify with prior written authorization a person (other than the customer) who will become an OPC member, If the client is incapable of the contract or agreement
- A nominee for an organization’s/memorandum firm should not be a nominee for more than one company.
What are the advantages and disadvantages of OPC in India?
In India, registering an OPC have various pros and cons. Some of the advantages and disadvantages of OPC are mentioned in the chart.
| Advantages of OPC | Disadvantages of OPC |
|---|---|
| Simple to use | Management and Ownership |
| Easy to manage | Only suitable for small businesses |
| Separate legal entity | Business operations are restricted |
| Easy incorporation | Security Concerns |
What are the advantages of OPC?
- Simple to use
The OPC’s is formed and maintained by a single person, hence affairs are straightforward to run, and the decision-making process is rapid. A single member can pass ordinary and special resolutions by recording them in the minute book and having them signed. Therefore, there will be no internal disagreement or delays and running and managing the company is simple. - Compliances are lower
OPC is exempted from certain compliance requirements by the Companies Act of 2013. It is not mandatory for OPC to prepare the cash flow statement. The book of accounts can be signed by the director and company secretary is not required to sign the books of accounts or annual returns. - Separate legal entity
The independent legal entity status of OPC is granted by its members. The main benefit of OPC is that it prevents the legal rights of the founder as it is a separate legal entity. The liability of a member is limited to his or her share, and they are not responsible for any losses the company suffers.
As a result, creditors can use the OPC rather than a member or director. - Perpetual succession
The single member in the OPC nominates a person, when the member passes away or is not capable of contracting, the nominee becomes the member and he then appoints a new nominee, so perpetual succession is maintained. - Easy to manage
Since it is established and maintained by a single person, it is simple to administer the OPC’s affairs.- Decisions are easily made, and the process of making decisions is rapid. Ordinary and special resolutions can be readily passed by the member by entering them into the minute book and having the solitary member sign them.
- This makes running and managing the company easy since there are no internal disagreements or delays.
- Easy incorporation
Incorporating OPC is simple because just one member and one nominee are necessary. A member can also be a director. The minimum capital required for forming an OPC is Rs.1 lakh, though there is no requirement for minimum paid-up capital. Hence it is easier to form an OPC. - Easy to obtain funds
OPC is a private company, which makes obtaining funding from venture capitalists, angel investors, incubators, and other sources easy. Banks and financial institutions prefer lending to corporations over sole proprietorships, which makes obtaining finance easier.
What are the disadvantages of OPC?
- Management and Ownership
Since the only member can also be the company’s director there will not be any apparent line between ownership and management. The lone member makes and approves all decisions. Since the barrier between ownership and control is blurred, unethical commercial activities may happen. - Only suitable for small businesses
OPC is suitable to the structure of a small firm. No more than one member can exist in the OPC at any point in time. OPC cannot recruit more members or shareholders to obtain funds and as the company grows more members cannot join. - Business operations are restricted
Non-banking financial investment operations, such as investing in corporate securities, are not allowed for OPC. Under Section 8 of the Companies Act, 2013 a company can convert into a charitable institution which is not allowed for OPC.
Conclusion
In conclusion, there are various advantages and disadvantages of OPC in India. It offers several advantages such as simplicity in management, lower compliance requirements, separate legal entity status, and easy incorporation, making it an attractive choice for solo entrepreneurs.
However, the disadvantages include potential blurred lines between ownership and management, limitations on size and growth, and restrictions on certain business operations. Entrepreneurs should weigh these advantages and disadvantages of OPC to determine if it aligns with the nature and goals of their business.
FAQs
1. What differentiates a sole proprietorship and One Person Company?
Legal structure and liability are the key differentiating factors.
Since OPC is a distinct legal entity, the owner has limited liability protection as there is a legal separation of business and personal assets.
In a Sole Proprietorship, which is an unincorporated business, due to lack of such separation both business and personal liabilities are on the owner.
2. What is the concept of liability in OPC?
The owner has unlimited liability in a sole proprietorship and is personally responsible for all debts and legal obligations of the business. The owner’s liability is limited to the extent of their investment in the company, safeguarding their personal assets from business liabilities in an OPC.
3. What is the registration process and compliance requirement of OPC?
Formation and compliance are different.
For the formation of an OPC, a member is required who should be above 18 years and an Indian citizen. Compliance involves obligations, such as filing financial statements annually and conducting AGMs as directed by the Registrar of Companies.
4. What is the business’s future in the event of the owner’s demise or retirement?
Upon the owner’s demise or decision to discontinue, the business ceases to exist in Sole Proprietorship. In contrast, OPCs can outlive their owners, ensuring Business continuity and allowing for succession planning.
5. With respect to fund raising and expansion in OPC, are there any advantages?
OPC can facilitate growth and stability by attracting external investors or issuing equity, which is not the norm with sole proprietors as they depend on loans or personal savings to fund their business.
6. For long term business growth, is OPC structure more suitable?
For small-scale and owner-operated businesses, Sole Proprietorship is suitable. An atmosphere of more long-term growth is possible in OPCs as they can attract external investors and due to the safety of Limited liability protection, perpetual succession, and capital raising ability through equity shares.
7. What are the tax implications specific to OPC?
Both Sole Proprietorships and OPCs are taxed as per the individual income tax slab rates. However, additional compliance obligations related to corporate taxation, such as filing annual tax returns need to be followed by the OPCs.
8. What factors should be taken into account when deciding between a Sole Proprietorship and an OPC?
Evaluation of factors such as liability protection, long-term business goals, growth potential, compliance requirements, funding needs, and personal risk tolerance can help you make an informed decision about the business structure that suits you the most.
9. What is the key advantage of OPC?
Having sole control over decisions is a key advantage of OPCs, but it can also be a drawback since it may result in fewer diverse perspectives and ideas.
