One Person Company
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One person company (OPC) means a company formed with only one person (Natural Person who is an Indian Citizen and Resident in India) as a member, unlike the traditional manner of having at least two members.
It is one of the significant milestone of The Companies Act, 2013, introduced to encourage the self-employment with a backbone of India's legal system, in other words A One Person Company (OPC) is a combined package of Sole Proprietorship Business and a Company.
The concept of OPC is not alien to the world. Through the years, this concept has been legally recognized in the UK (2006), USA (a.k.a Limited Liability Company in US), China (2005), Singapore (2004), Turkey (2012), UAE, Pakistan (2003).
Advantages of One Person Company
A One Person Company (OPC) Private Limited has many advantages as compared to Companies and Proprietorship firm.
1. LESS COMPLIANCE BURDEN:
OPCs have been provided with a number of exemptions under The Companies Act,2013 and therefore have lesser compliance related burden than Private Limited Companies.
2. ORGANIZED SECTOR OF SOLE PROPRIETORSHIP:
OPC has brought the unorganized sector of proprietorship into the organized version of a private limited company. Various small and medium enterprises, doing business as sole proprietors, can now enter into the corporate domain. The organized version of OPC has opened the avenues for more favorable banking facilities. Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited.
3.MINIMUM REQUIREMENTS:
- Minimum 1 Shareholder
- Minimum 1 Director
- The director and shareholder can be same person
- Minimum 1 Nominee
- No Need of any Minimum Share Capital
4.LIMITED LIABILITY PROTECTION:
The most significant reason for shareholders to incorporate the "single-person company" is certainly the desire for the limited liability.
All unfortunate events in business are not always under an entrepreneur’s control, hence it is important to secure the personal assets of the owner, if the business lands up in crises.
While doing business as a proprietorship firm, the personal assets of the proprietor can be at risk in the event of failure, but this is not the case for a One Person Private Limited Company, as the shareholder liability is limited to his shareholding. This means any loss or debts which is purely of business nature will not impact, personal savings or wealth of an entrepreneur.
If the business is unable to pay its liabilities, the individual has to pay such liabilities off in the case of sole proprietorship, and the individual is not responsible for such liabilities in the case of a one person company.
An OPC gives the advantage of limited liability to entrepreneurs whereby the liability of the member will be limited to the unpaid subscription money. This benefit is not available in case of a sole proprietorship.
“Thus OPC allows an individual to take risks without risking his/her personal assets”.
5.ADEQUATE SAFEGUARDS:
In case of death/disability of the sole person should be provided through appointment of another individual as nominee director. On the demise of the original director, the nominee director will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.
Disadvantage of one person company
- One-person Company can have Minimum or Maximum no. of 1 Member.
- A minor shall not be eligible to become a member or nominee of the One Person Company or can hold share with beneficial interest.
- Only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company.
- OPC is suitable only for small business. OPC can have maximum Paid up share capital of Rs.50 Lakhs or Turnover of Rs.2 Crores. Otherwise OPC need to be converted into Private Ltd Company.
- One Person Company cannot carry out Non – Banking Financial Investment activities including investment in securities of anybody corporates.
- One Person Company cannot be incorporated or converted into a company under Section 8 of the Act.
- A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company.
- NRIs not allowed incorporating One Person Company.