What is one person company? Definition and Benefits
What is OPC Company?
The Companies Act, 2013 has introduced the concept of One Person Company in India. It was introduced with an intention to support those entrepreneurs who have the confidence and capability to initiate their own venture in the form of a single person economic entity. A One Person Company is a separate legal entity from that of its promoter. It offers limited liability protection to its sole shareholder at the same time allows continuity of business. A One Person Company is required to nominate a Director in its Memorandum of Association and Articles of Association of the company. This provision is made in order for the company to be managed if the sole director is disabled because of any untoward circumstance. As per the Companies Act, it is to be noted that a One Person Company has to be converted into a private limited company if the company's annual turnover exceeds Rs. 2 Crores. Once it exceeds Rs. 2 Crores, the company has to file audited financial statements with the Ministry of Corporate Affairs at the end of each financial year.
Now let us understand the major advantages of a One Person Company
Advantages of a One Person Company
1. Simple Funding
Through venture capital, financial institutions, angel investors and similar methods, a One Person Company can raise its inward funds.
2. Separate Legal Entity
An One Person Company is a separate legal entity from that of its promoter and it is capable of doing everything which an entrepreneur is able to do.
3. Good Opportunities with Limited Liability
One of the biggest advantages of a One Person Company is that it has gamut of opportunities and also it has limited liability which is proportionate to the value of shares the promoter holds. The plus point of having limited liability is that the promoter can take more risks without being vulnerable to suffering the loss of personal assets.
4. The Prerequisites
An One Person Company needs to have a minimum of 1 shareholder and director wherein the director and the shareholder can be the same person. There also should be one nominee who can take the place of the director/sole promoter in case the director/sole promoter is disabled. An OPC can focus more on its functionalities as it does not have big liabilities and stringent compliances that need to be followed.
5. Single Owner
An One Person Company has a single owner who is responsible of taking decisions and in charge of controlling a managing the business. The director/sole promoter can take complete authority of the business and at the same time need not worry about the liabilities.
6. Credit Rating
An One Person Company can obtain loans irrespective of its credit rating. It means that loans can be obtained by the One Person Company even if it has bad credit ratings.
7. Benefits like that of a Small Scale Industry
An One Person Company can own may of those benefits which are enjoyed by the small scale industries such as easy funding from the bank, lower interest on loans without security deposits, innumerable benefits under Foreign Trade Policy, etc.
8. Benefits under Income Tax Law
Unlike proprietorship, in an One Person Company, any remuneration the director receives will be allowed as deductions as per income tax law. An OPC can also avail the benefits of presumptive taxation.
9. Interest if received on any late payment
A newly incorporated One Person Company is either a micro, small or medium enterprise and hence an One Person Company can avail all the benefits under the Enterprises Development Act, 2006. In case a late payment is received, the buyer/receiver is entitled to receive interest three times more than the bank rates.
10. Trust and Goodwill
An incorporated business always enjoys trust and goodwill as compared to those entities that has not registered. Hence, one person company registration becomes important.
An One Person Company has several advantages, be it having limited liabilites, good financial assistance by banks or be it the goodwill that it enjoys for operating under the law.