Looking to start a one-person company? Here, we discuss the advantages and disadvantages of this kind of structure so you can figure out if it’s right for you.
Once upon a time, the only avenue available to a single businessperson to register his or her company was to opt for a sole proprietorship. However, recently, a second option has been added. A one-person company can be registered when there is only one owner of the trade.
In this article, you will learn about the pros and cons of setting up a one-person company.
A one-person company (OPC) is best suited for people who wish to be solo entrepreneurs. Sole proprietorships, interestingly, offer the same benefit. However, unlike sole proprietorships, an OPC offers limited liability and the status of a separate entity, along with a better standing in the market (increased trust and respect).
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The advantages of an OPC are as follows:
According to the Companies Act, the liability of the single shareholder in an OPC 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. Moreover, this allows the OPC to have a continuous life beyond that of the founding director.
An OPC is registered under the Companies Act and 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, makes it popular among banks and financial institutions.
Easier Returns Filing
While it is mandatory for an OPC to get its accounts audit and file requisite annual returns, the same can be easy 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 the turnover crosses ₹2 crores, on average, for three consecutive years, the OPC must convert 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.
To conclude, there are two chief factors to add in mind while registering an OPC. Further, a tax slab of 30%, the same as a private limited firm, is the biggest demerit of an OPC. The most significant merit of a one-person company is the limited liability.
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