Exploring the Advantages of One Person Company
It is very clear to us that One Person Company (OPC) refers to a company formed with only one person as a member, it is unlike other companies having more than one member. Section 2(62) of the Companies Act says that a one person company has only one person as its member. So, an OPC is a company which has only one shareholder as it has only one member in it, It works similarly to a Private Limited Company.
The advantages of One Person Company will be focused in this section.
TABLE OF CONTENTS
• ADVANTAGES OF ONE PERSON COMPANY:
• DISADVANTAGES
• FAQS
ADVANTAGES OF ONE PERSON COMPANY:
• Separate legal entity
The first advantage is that an OPC is a separate legal entity and can function the same as how an entrepreneur works. The One Person Company is said to be a separate legal entity. When it is spoken legally, a company is a person, which has a common seal, and perpetual succession. It has the authority to exercise all the functions of an incorporated person.
• Easy Funding
OPC is a private company, it can raise funds through certain ways like financial institutions, venture capital, angel investors, etc. When it is seen that OPC can raise funds then it is gradually building itself into a private company.
• More opportunities, Limited liability
One of the great advantages of OPC is that it has a lot of opportunities that it can grab to perform with limited liability. It means that an individual can take up risk without suffering or affecting the loss of personal assets.
• Minimum Requirements:
Here are some basic requirements to have an OPC, 1 Shareholder 1 Director
In OPC one of the advantages is that the shareholder as well as a director can be of the same person.
• Minimum 1 Nominee
There must be a name formed by the OPC to distinguish it from other companies.
• Benefits of being a Small Scale Industries (SSI)
An OPC is entitled to avail of the various benefits that are provided to smallscale industries like easy funding from the bank without depositing any security, low interest rates on the loan, etc. All these benefits can be a great advantage to any business in its infancy.
• Single Owner
In OPC, the single owner is responsible for quick decision-making, controlling, and managing the business of his own company. The owner of the OPC is the one who has all the power to run the business. Also read related articles
OPC Registration: Expert Tips for Successful Registration
Is GST Mandatory for OPC: Navigating the Tax Landscape
Exploring the Limitations of One Person Company
• Credit rating
The OPC should have a good credit rating. If the OPC has a good credit rating, then it has a good impression and can easily get a loan. If not, it is quite hard to operate the business.
• Benefits under Income Tax Law
Unlike proprietorship, any remuneration that is paid to the director will be considered as a deduction as per income tax law and presumptive taxation is also available under the income tax law.
• Receive interest on any late Payment: This benefit for OPC is available under the Enterprises Development Act, of
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2006. According to this Act, if the buyer or receiver receives any late payment after a specified period, then he can receive interest which is three times the bank rate.
Increased Trust and Prestige
The OPC that has a good business with good profit has a good reputation among the people. It increases its prestige and trust among the people. Not only OPC, but any business entity that runs in the form of a company enjoys increased trust and prestige.
DISADVANTAGES:
• Management and Ownership
There is no difference between ownership and management in OPC because only one member is the company’s director. In OPC, All sorts of decisions regarding the business are taken by a single person. This Perhaps, can lead to unethical commercial activities.
• Only suitable for small businesses
OPC (One Person Company) will be well-suitable for a smaller firm. At any time, the OPC is not entitled to have more than one member. To get funds for running the business, the OPC cannot recruit more members or shareholders.
• Business operations are restricted
The OPC is restricted to Non-Banking Financial Investment activities which include the investment in securities of any other corporate body.
• OPC is included in the Name
It is the major disadvantage faced by the OPC. After the name of the OPC, it should include that it is an OPC in a small bracket. This can create a bad impression on the people as they think that it is operated by a single person and might not be that effective.
• One Person Management
It is well known that section 2(62) of the Companies Act 2013 provides that the company can be formed with one director and one member. Likewise, when it comes to the shareholder, the OPC can have only one shareholder. Sometimes there are chances that the decisions made may be vague as they are made by only one person with no one to support.
• Not suitable for high turnover
The OPCs are not suitable for high turnover, it is said so because when there is high turnover in a business of an OPC it is automatically converted into a private limited company. This is positive in some aspects but it can also have a great negative impact on certain OPCs. Hence, the one-person company enjoys certain benefits that help them to develop their business and bring them good profit whereas there are certain restrictions and disadvantages in one Person Company which can sometimes be a barrier to the development of the business.
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FAQS
1. What are the advantages of a one person company over a sole proprietorship?
A single member who establishes an OPC does so as a separate legal organization. Only the member’s shares are subject to liability. The damage suffered by the company is not individually accountable to the member. Since OPC is a private company, it is simple to generate capital or funds.
2. What are the challenges faced by OPC?
Section 8 of the Companies Act 2013 which deals with the Formation of companies with charitable aims and etc.. says that an OPC cannot be incorporated.
Additionally, an OPC is not permitted to engage in nonbanking financial investment operations This includes purchasing securities from any corporate entity.
3. What are the 2 main features of OPC?
The two main features of OPC are:
1. One Member: An OPC can be founded with only one member, who will serve as both the company’s director and shareholder.
2. Distinct Legal Entity: An OPC, like any other corporation, is a distinct legal entity from its members.
4. Does the OPC need GST?
OPC Companies must register for GST if they provide goods or services and their annual sales total more than Rs. 20 lakhs for services and Rs. 40 lakhs for items.
5. What is the impact of the one person company?
OPC will provide the businessperson with all the advantages of a private limited company, which clearly means they will have access to credit, bank loans, limited liability, legal protection for their operations, access to the market, etc., all in the name of a distinct legal entity.
6. Can OPC convert itself into a charitable company?
No, an OPC can’t be incorporated or converted into a company for charitable or nonprofit purposes and it cannot perform financial, non-banking, or investment operations including investment in securities of any corporate unit.
7. Can OPC have more than one shareholder?
Under the Companies Act of 2013, a One Person Company (OPC) is classified as a Private Limited Company. At any given moment, OPC cannot have more than one stakeholder. Furthermore, an OPC cannot add shareholders in order to raise additional cash.