Merit and Demerit of One Person Company
One Person Company is a type of modern business entity. It allows operating a corporate entity by a single entrepreneur with limited liability protection. OPC is also said as a combined package of a Sole Proprietorship business and a Company, borrowing the best of both worlds. It came into existence after the Companies Act, 2013. The purpose of this type of business organization is to encourage startups. With this kind of business entity, any person can start business individually without thinking about other subscriber or shareholder.
A One Person Company comprises many benefits from a lower rate of Interest on loans to easy funding from the bank without depositing any security to a certain limit and many more. All these advantages work like a boon to any business in initial years.
Here are some insights of One Person Company; some of the points show the positive side and some show negative side.
Merit of OPC
- To initiating one person company, one does not have to make a big investment. If you have a bank account having a minimum balance that could be as much less as 5000, you are eligible to start your business.
- There are many relaxations in OPC. There is no need to hold the annual or general meeting every year also no need to maintain the quorum during the meetings.
- As the OPC is registered under the Act, it enjoys the same value as of a Private Limited Company with increased trust as well as legal status. How to register a company?
- As it becomes a corporate entity after its incorporation, the business owner can easily avail loans and the credit facilities from the bank.
- Since the One Person Company is protected by only limited liability so, the personal assets of the owners are safeguarded.
- In this business venture, it is easy to get accounts audited and file annual returns with the signature of its director.
- As there is only one, it boosts quick decision-making, controlling and managing the business without following any elongated processes and methodologies.
Demerit of OPC
- Once a person incorporates One Person Company, he needs to wait until the expiry of 2 years from the date of incorporation to convert it into a private or public limited company.
- OPC cannot raise funds by selling its shares, and hence those startups do not prefer this business origination, who wants to start their business venture by funding.
- One Person Company is not suitable for complex business such as NBFC, and also it cannot be incorporated as a Section 8 company.
- In, One Person Company, the high tax rate is a big disadvantage. Here, the owner is directly charged 30% income tax.
- One Person Company is not suitable for the entrepreneurs, who are looking for a high turnover business. Here, the better choice is to build up a private limited company. Conversion of One Person Company into Private Limited Company is not considered a good idea.
- OPC is limited to only one shareholder that means one cannot offer part ownership to any other person.
- One Person Company cannot invest in the shares and securities of another corporation which is not a good part for OPC.
- Incorporation of One Personal Company involves more paperwork than incorporating a sole proprietorship.
In summary, it can be said that the concept of One Person Company is a perfect blend of goodness and badness. But it is still novel in India and an unfamiliar concept for many people. It will take some time for people to understand this new concept. It provides a newer platform for small and mid-level entrepreneurs and provides legal protection to the unorganized Indian businesses.