Under the Companies Act 2013, One Person Company (OPC) was established. It allowed one person to own and manage their company and gain the advantages of both Sole Proprietorship and a corporation. One Person Company registration in India offers numerous advantages to entrepreneurs and small business owners. Numerous benefits of One Person Company in India are for entrepreneurs and small business owners is explained in this article.
One Person Company was established to encourage entrepreneurship and MSMEs’ corporatization. It incorporates all the benefits of a Private Limited Corporation, such as perpetual succession, identifying as a distinct legal entity, and protecting personal assets from the obligations of the firm.
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What are the benefits of One Person Company in India?
- Greater control and flexibility
- Unlike a partnership firm or a Limited Liability Partnership (LLP) firm, the sole shareholder in OPC has complete control over the company’s decision making process.
- Fewer compliances than other businesses
- The OPC is required only to file an annual return. Compliance with audits or balance sheets filing is not an obligation.
- Taxation benefits:
- One Person Companies are treated as separate entities for taxation purposes, and the Taxation rate for profits is lower rate than those of a partnership firm or LLP.
- Raising capital through Investments
- It can have a maximum of 200 shareholders, making raising funds through equity investments easier for the business.
- Moreover, the company can borrow funds from banks and other financial institutions, giving it more resources.
How many directors can an OPC have?
According to the Companies (Incorporation) Rules 2014 of India, an OPC can have only one director at the board. The director can pass a board resolution by entering it into the minute book, which shall be signed and dated by the director. Such date is deemed to be a meeting of the Board of Director.
Therefore, an OPC cannot have two directors. It can only have one director on the board. Know the provisions of One Person Company under Companies Act.
What are the restrictions of One Person Company?
- Raising funds through loans
- A One Person Company can own only one shareholder and money cannot be raised through the issuance of convertible debentures or shares until it changes to a public or Private Limited Company.
- A One Person Company can raise funds through loans or non-convertible debentures only.
- Reduced Penalties
- Penalties for any non-compliance of a One Person Company cannot surpass half of the stipulated penalty, The OPC will be fined up to a max of INR 2 lakhs and the default officer INR 1 lakhs.
- The maximum capital is not applicable to all non-compliances; rather, it only applies when one half of the penalty for a non-compliance reaches INR 1 lakhs for the officer and INR 2 lakhs for the default One Person Company.
- Perpetual Succession and Limited Liability
- Compared to Limited Liability Partnership or a traditional corporation, an OPC is a legal entity that is treated as a separate legal entity under the law, and the lone shareholder’s liability is limited to the membership fee paid by that shareholder.
- Reduced number of Meetings
- Depending on the number of directors (only two board meetings with a 90-day break between them are allowed), there may be fewer or no board meetings.
- Restricted Activities
- Non-Banking Financial Investment activities including investment in securities of any other body corporate.
- Under the terms of Section 8 of the Act (Charitable Object), a One Person Corporation cannot be established or changed into a Section 8 company.
- Capital Threshold
- There is a capital threshold for OPC. As they are one member company and so the capital invested is usually low only, so the law has fixed the maximum limit of capital for OPC which is INR 50 lakhs.
- Section 193(2)
- In accordance with Section 193(2), the firm must notify the Registrar within fifteen days of the date the Board of Directors approved any contract that it has entered and that was noted in the minutes of its Board of Directors meeting.
What is the difference between OPC and Sole Proprietorship?
- OPC is a company that has only one person as its member and shareholder, while Sole Proprietorship is an unincorporated business that has only one owner.
- OPC has the features and benefits of a company, such as limited liability and perpetual succession, while Sole Proprietorship does not have these advantages.
- OPC is regulated by the Companies Act and has to comply with various legal formalities, while Sole Proprietorship is governed by the general laws and has less compliance burden.
More details: distinguishing Sole Proprietorship and One Person Company.
What are the relaxations for OPC?
OPCs are subjected to some relaxations, key relaxation includes exemption from holding annual general meetings, depending on the number of directors fewer or no board meetings are allowed (only two board meetings with a 90-day gap between them are allowed).
Statutory auditor rotation isn’t required, cash flow statement planning is exempted, OPC need not specify whether or not there are adequate internal financial controls, and also the operating effectiveness.
What is the eligibility criteria for OPC?
To enable budding entrepreneurs to start their businesses, the Indian Government has made it more accessible to start a One Person Company.
Registration and formation of a One Person Company requires fulfilling the following criteria
- The individual should be
- An Indian citizen
- Resident of India
- The individual should not be
- A minor
- A Promoter or a Director of another company
- The individual should not have
- Incorporated more than one OPC.
- Any existing OPC in operation.
- Been declared a person of unsound mind by any court
- The individual should not be
- Convicted of any offense related to a company’s promotion, formation or management.
- Disqualified from being a company director.
After fulfilling the eligibility criteria, the individual can apply with the Registrar of Companies (ROC) along with the necessary documents. After the application is filed, the ROC will process it in a few days and issue the Certificate of Incorporation. Post which, the individual can start the OPC’s business operations.
For entrepreneurs who wish to have complete control over their business without sacrificing the benefits of limited liability a One Person Company is an attractive option. The taxation and capital raising advantages along with the flexibility and ease of operations, make a One Person Company an excellent option for starting a business.
JOIN 24EFILING TELEGRAM CHANNELConclusion
In conclusion, Under the Companies Act 2013 there are various benefits of One Person Company in India. It is significantly facilitated entrepreneurship and the corporatization of small businesses. While certain restrictions and eligibility criteria exist, the overall advantages make OPCs an appealing option for those desiring sole ownership with the benefits of a corporate structure.
Looking to regsiter a One Person Company in India? 24efiling will help you register your dream company.
FAQs
1. What is the advantage of an OPC?
An OPC is a company that has the advantages of both a sole proprietorship and a corporation.
2. What is the benefits of One Person Company in India?
There are various benefits of One Person Company in India which includes greater control and flexibility, requires fewer compliances, offers taxation benefits, and is easier to raise funds.
3. What is the maximum shareholders an OPC can have?
An OPC can have a maximum of 200 shareholders.
4. What is the capital threshold of an OPC?
The law has fixed maximum limit of capital for OPC to INR 50 lakhs.
5. What are the privileges of a One Person Company?
Under the Companies Act, OPCs enjoy certain advantages and exemptions. They are exempt from holding annual general meetings, and there is no requirement to include cash flow statements in their financial reports. Additionally, directors have the authority to sign the annual returns without the mandatory need for a company secretary.
