One Person Company and It's advantages & Disadvantages

We discus here an One Person Company and It's advantages & Disadvantages ,first we know-

What is a One Person Company?

One person company or popularly known as OPC is a new concept that came into existence along with Companies Act, 2013. It can be said as a company run by a sole proprietor.

Definition

As per sub-section (62) of Section 2 of Companies Act, 2013 a one person company is a company that has only one person as a member. That member of the company is also the director and owner of company.

Incorporation Procedure

As per Section 3 of Companies (Incorporation) Rules, 2014 a One person company can only be incorporated by a natural person who is an Indian citizen as well as resident of India. A person can incorporate only one OPC. In an OPC apart from a director, the member needs to appoint a nominee too. This is done to keep going concern assumption intact. The nominee will take over the business after the death or retirement of the director. The steps to incorporation of OPC are:

• Propose a director and obtain DSC (Digital Signature Certificate) for him.
• Obtain his DIN (Director Identification Number).
• Select a suitable name and forward the application to MCA (Ministry of Corporate Affairs).
• Draft its MOA (Memorandum of Association) and AOA (Articles of Association).
• Sign the necessary documents, like MOA and AOA and submit them electronically with the ROC (Registrar of Companies).
• Pay requisite fees along with stamp duty.
• Get the documents scrutinized by ROC.
• Obtain COI (Certificate of Incorporation).

Benefits

Compared to a Private Limited Company an OPC has many benefits as below:

• Less Compliance
• Limited Liability Protection to Directors
• No requirement to holds annual or Extra-ordinary General Meeting
• Relatively less Registrar of Companies filing

Restrictions

The concept of a One Person Company is fairly new. Although it is easy to incorporate, it has a few restrictions, viz.

• The nominee required to be appointed must be a major.
• A One Person Company cannot be converted into a company defined under Section 8 of the Act.
• An OPC cannot perform investment activities of an NBFC (Non-Banking Financial Company).
• One person Company can have Minimum or Maximum no. of 1 Member.
• As per the Income Tax Act, 1961, private companies have been placed under the tax bracket of 30% on total income. There is no concept of OPC in Income Tax Act. The Tax rates on proprietorship as per individual slabs ranging from 10% to 30%.
• Compared to Proprietorship the costs of Incorporation is higher
• Compliances are more compared to Proprietorship.
• A One Person Company cannot be voluntarily converted into a public or private company until the expiry of two years since its incorporation. Although, if the company's paid up capital increases beyond ₹50 lacs or its average turnover exceeds than ₹2 crores then it automatically converts to a private company.

You can find more about One Person Company registration on our website by clicking here. Hope you have liked our article on " One Person Company and It's advantages & Disadvantages ". Let us know what you think in the comment section below.