Advantages of One Person Company over other Company Types

Tanya Verma

29 Mar, 2023

The major advantages of One Person Company are that the owner is solely responsible for all the affairs/matters of the company, has fewer liabilities, enjoys benefits similar to Private Limited Company, etc. The owner is solely the most powerful authority of that company. Incorporating an OPC offers a great number of advantages over other company types. In this blog, we are going to look at all of them.

One Person Company: A Brief Overview

As the name suggests it is a company run by only one person. According to Section 2 (62) of the Companies Act, 2013^[1] One Person Company means a company consisting of only one person as a member. Generally, it is a company incorporated and maintained by a single person. Entrepreneurs choose this type of company over sole proprietorship to forge their company and to overcome the difficulties faced in the sole proprietorship firms.

What is the Nature of a One Person Company?

A One Person Company (OPC) can only be registered as a Private Limited Company. Hence, all the provisions applicable to a private company will also prevail on a One Person Company (OPC) unless otherwise it is expressly excluded in the concerned Act or rules made there under. Further, a One Person Company can easily be converted into a Private Limited Company or a Public Company. It is significant to note that the word “One Person Company” must obligatorily be mentioned at the end of the company’s name.

Characteristics of One Person Company

The salient features of One Person Company are as follows;

• It is incorporated as a private company
• It can consist of only one member and a director
• The term One Person Company should be included in the name of the company under brackets
• The member/nominee should be; a natural person, Indian citizen, or a person residing in India.

*Note- the term resident of India represents a person residing in India from a period not less than 182 days

• Like in any other company a minor is not allowed to become nominee, shareholder, etc. of the company

What is the Eligibility Criteria for Obtaining OPC Registration?

Following are the guidelines which are to be duly complied with before obtaining an OPC registration – 

• Only a person who is either an Indian Citizen or the Resident of India. The Resident of India means a person who has stayed in India for a period not less than one eighty-two days in the preceding year.
• Business Structures like the Limited Liability Partnership or a Company cannot join a One Person Company.
• A nominee must have been chosen by the promoter during the process of Incorporation.
• The minimum authorized capital should be rupees one lakh.
• One Person Company is restrained from appointing a minor as its member
• If in case the One Person Company exceeds the turnover of rupees two crores or has a paid-up capital more than rupees fifty lakhs. Then the concerned One Person Company must convert itself either into a public or a private limited company within six months.
• At least one shareholder, Nominee and Director

What are the Exemptions granted for a One Person Company under the Companies Act, 2013?

Following are the Exemptions granted to the One Person Company under the Companies Act, 2013 – 

1. Sign on the company’s annual returns.
2. Hold Annual General Meetings (AGM) and the Board Meetings.
3. Sign on the company’s Financial Statements.
4. Option to dispense with the necessity of conducting an AGM (Annual General Meeting)
5. Power of the Tribunal to call for the meetings of company’s members.
6. Calling for an EGM (extraordinary general meeting).
7. Notice of the concerned meeting.
8. Statement is required to be annexed with the concerned notice.
9. The Quorum for the meetings.
10. Chairman of the meetings.
11. Proxies for the meetings
12. Restriction on the voting rights.
13. Voting by the show of hands.
14. Voting by way of electronic means.
15. Demand for poll.
16. Postal ballot.
17. Circulation of the members’ resolution.

What are the Annual Compliances regarding the One Person Company?

• Minimum two Board Meetings is required to be held as per the provisions of the Companies Act, 2013
• Statutory Audit must be done by the Practicing Chartered Accountant
• Appointment of an Audito
• Filling of an ITR (File Income Tax Return)
• Annual Filling to the Registrar of Companies (ROC)
• Maintenance of Minutes and the Statutory Registers
• Filling of the Form- AOC-4 for the financial statement
• Filling of the Form MGT-7 for the annual return

Advantages of One Person Company

A-One Person Company holds numerous advantages over any other company types. The major advantages of One Person Company are as follows; 

• Easy to raise fund: It is easy to raise fund for an OPC from various sources such as Angel investors, venture capitals or other financial institutions.
• It enjoys rights similar to private limited company: An OPC enjoys rights and benefits similar to that of a private limited company. This is because these companies are incorporated in the way similar to that of a private limited company.
• The minimum requirement for company formation: OPCs have the least requirements for company registration which is; 1 shareholder, 1 director 1 nominee. Also, provided the shareholder and the director can be the same person.
• OPCs enjoys the benefits of being a Small Scale Industry: OPCs experiences numerous benefits that are given to  Small Scale Industries like; easy funding from a bank, lower interest rates on loans, and also can benefit from Foreign Trade Policies, etc.
• Sole ownership: OPCs have only one owner which really accelerates, decision making, managing the business, it eliminates the need to take suggestion and permissions from other managing officials, and the sense of self belonging keep the owner motivated to work and find ways to help grow the business.
• A credit score does not affect borrowings: Unlike any other type of company OPCs having a bad credit score also can get loans after applying.
• They receive interest on all late payment: OPCs receives interest which is three times the rate of bank, on any late payment as per the Enterprise Development Act, 2006. These companies are allowed to do so because they are micro, small or medium in nature and hence, covered under this act.
• OPCs are trusted: OPCs gain trust and prestige because they run in the form of a company and this is a platform which is more trusted by the general public
• Annual Return Filing: The Annual return is signed by the company director and it is not mandatory for them to get it signed by a company secretary.
• OPCs avail benefits under the Income Tax Law: Unlike proprietorship firms, the OPCs are eligible for deductions under the Income Tax Law.
• Cash flow statement: It is not mandatory for OPCs to prepare a cash flow statement.
• Annual general meeting: There is no need for OPCs to hold an annual general meeting or board meeting. Instead, they are prescribed to maintain a minute book. It should be signed and dated by the members.
• Low investment: To register a one-person company all you need is to have at least Rs. 5000 in your bank account.
• No harm to the company in case ownership changes: There is almost any effect on the company when the ownership of the company changes.

These are just a few advantages of registering a One Person Company. Incorporating such a company provides many more advantages.

Also, Read: How to Setup One Person Company Formation in India.

Disadvantages of One Person Company

A list of Disadvantages of One Person Company is given below;

• One person is not allowed to be a nominee or incorporate in more than one OPC
• This type of company cannot carry out NBFC activities or invest in securities of any other corporate body
• OPC cannot be converted into Section 8 companies
• OPC cannot be converted into private/public limited company until two years from the date of incorporation
• An OPC cannot earn profits by selling its shares
• This form of company is suitable only for small businesses

Conclusion

Read our article:How to Setup One Person Company Formation in India