One Person Company Registration | Process and Benefits | Advantages and Disadvantages
One Person Company
One Person Company or the OPC is a single person owned company, that is, it has only one shareholder. An OPC is a private limited company. In a One Person Company, there is a single shareholder you can also act as the director of the company. However, one person company can have as many as 15 directors. A shareholder owns a company but a director is involved in the management and the operations of the company.
Previous Companies Act from 1956 did not have any concept or law about the one person company. This concept has been introduced in the Companies Act 2013. Earlier it was mandatory to have two or more people to open a company but with the introduction of the OPC, you can start your own company whenever you want. One Person Company is considered as an ideal option for the beginners and the people who wish to startup. The best point to notice is that the financial liability is limited to the company, not to the member.
Advantages of OPC
A One Person Company is introduced under section 2(68) of the Companies Act 2014. An OPC has a number of advantages comparing other proprietorship firm and companies.
Single person ownership
This is the first and biggest advantage of the One Person Companies. An OPC private limited company has a single owner, that means the company has only one shareholder. The owner, in this way, can make and take quick decisions and control over the entity as per his or her vision and requirements.
One of the most prosperous reasons why people are ready to slot for a One Person Company is the crave for limited liability. When business is not doing good and things get out of profit then it's necessary to secure the company's personal assets. The owner or the shareholder in the OPC is solely accountable for business claims. A One Person Company offers the benefit of limited liability to entrepreneurs.
An OPC does not have a large number of requirements. One Person Company requirements are:
- Minimum 1 shareholder
- Minimum 1 director
- Shareholder and director of the company can be the same person
- Minimum 1 nominee
Less Compliance burden
As the section 2(68) of the Companies Act, 2014 reads, a One Person Company is included in the 'Private limited company’ definition, hence the rules for private companies shall be equally applied on the OPC as well. A number of exemptions have been provided for a one person company and therefore it has lesser compliance burden.
Easy to manage
One Person Company can also be said a small company and thus is easy to manage. OPC does not require Annual meetings. An OPC can conduct at least one meeting of the board of directors each half of a year. However, the gap between the two meeting must be more than 90 days. Also, the provision of a quorum for meetings of the board under section 174 of the Act does not apply to an OPC where there is only one director.
Disadvantages of OPC
As everything has advantages and disadvantages, the concept of One Person Company is also experienced some of the disadvantages. Following are the same.
It is one of the major disadvantages of the One Person Company. There can be a minimum and maximum one person only. Also if a person is holding share in the OPC, or is a member or nominee of the company then he must not be a minor. This infers that a minor is not eligible for all these positions in an OPC. Including this, only Indian citizen can be eligible to become a member or nominee of the One Person Company.
Suitability for small businesses
The concept of One Person Company has emerged as a key more suitable for small businesses. As per section 2(68) of the Companies Act 2013, an OPC can have Rs50 lakhs as the maximum paid up share capital and Rs 2 crores as the maximum annual turnover. If anyhow the moment comes and any of this mark breached, then the One Person Company shall have to be converted into a Private limited company or a Public Limited Company.
The One Person Company concept is undoubtedly a good concept which empowers people to think of opening a startup but the concept does not come under IT act and therefore such companies are in the same tax slab. 30% is the basic Income Tax rate (IT rate) for the One Person Company which may eventually result in higher tax rates comparing IT slab rate for individuals.
Less Business activities
Since One Person Company is a small company, it has lesser business exercise as compared to other private limited companies. If you want to expand your business by involving people on the board, or you want to infuse funds by giving someone incentive of giving shareholding, this all is not possible. Also, a One Person Company cannot be converted into the company before the tenure proposed under section 8 of the Companies Act 2013.
The concept of One Person Company introduced under the Companies Act 2013 is a well accepted and advantageous legal provision. It is a method under which you can start your company. Most of the startups today are a One Person Company. The concept is undoubtedly emerging with a flabbergasting velocity. A proprietor, a shopkeeper, a Store manager or any individual can start an OPC. One Person Company is an ideal option for those who wish to experiment with this, who does not know how today's business work, just to try out the business initially.