A One Person Company (OPC) is best suited for people who wish to be sole entrepreneurs. While even a sole proprietorship offers the same benefit, unlike a sole proprietorship, an OPC offers limited liability and also a separate entity status, along with a better standing in the market (increased trust and respect).
The major advantages of an OPC are as follows:
According to the Companies Act, in an OPC, the liability of the single shareholder is limited to the unpaid subscription money in his/her name. This means that his/her personal property is completely safe from creditors of the business.
The Companies Act also provides for a person, nominated by the stakeholder, to take over the reins of the company in the event of the death or inability of the said stakeholder. This allows the OPC to have a continuous life, beyond that of the founding director.
As the OPC is registered under the Act, it enjoys the same privileges that come with a firm being listed as a private limited company.
Easy Credit Facilities
The legality of this type of business and also the perpetual succession clause only makes it popular among banks and financial institutions.
Easier Return Filing
While it is mandatory for an OPC to get its accounts audited and file requisite annual returns, the same can be easily done with the signature of the director; the need for a company secretary’s signature is not mandatory.
Disadvantages of an OPC
Since the firm is treated in the same way as a private company, the tax slab applicable is the same. That would mean an OPC would have to pay 30% tax on all profits. There are no exemptions.
Need for Change
An OPC will only support small businesses. If turnover crosses Rs. 2 crore, on average, for three consecutive years, the OPC must be converted to a private limited company, public limited company or LLP.
A person can only register only one OPC, until and unless it loses its status. This is bound to affect serial entrepreneurs.