The Companies Act, 2013 came with the groundbreaking amendment that legalized ‘One Person Company’.
Earlier an entrepreneur who wanted to venture out alone had to go for the Sole Proprietorship. This meant that entrepreneurs were prone to risks arising from unlimited liability. OPC was created with an aim to support young entrepreneurs who faced this problem.
The company is ‘a voluntary association of individuals’ this makes One Person Company an oxymoron.
Main differentiators of OPC compared to Sole Proprietorship are:
One person as shareholder/member/director
Registered as a Private Company
Has a common seal
Management rests with the promoter
Separate Finances for company and the promoter
OPC could be limited company; limited either by shares or guarantee
OPC could also be unlimited company
OPC should have the minimum paid up capital of rupees 1 lakh.
OPC cannot transfer its shares and it prohibited to invite public to subscription of its shares
Now that you know all the features, you would have understood that OPC is a mini version of a Private Company but without many legal strings attached.
Benefits of OPC compared to Sole Proprietorship are:
Limited Liability
Ownership or succession can be perpetually transferred
Separate legal entity, it’s seen as an artificial person with all constitutional rights
Separate property rights wherein the director in charge of making decisions on company’s behalf.
Credit history of company is scrutinized while borrowing funds
Corporate taxes are applicable
Restrictions imposed on OPC compared to Sole Proprietorship:
Shareholding
One person company has a sole director running the business. It also has a nominee director who would get the charge of business if the director passes away. Or becomes incapable of getting into contract. However, section 149 permits the promoter to appoint more than 15 directors after passing a special resolution.
Naming and Branding
‘One Person Company’ should always be mention with the name of the company. Foreign citizens, minors, nonresidents, a person incapacitated to contract can’t form an OPC.
Other Caveats
OPC can lose its special rights:
if it’s paid up capital exceeds RS 50 lakhs or
Average annual turnover exceeds 2 crores in 3 immediately preceding consecutive years
There are other important differences between One Person Company and a sole proprietorship. The below Infographics illustrate those contrasts between an OPC and a Sole Proprietorship.
Read also: 8 Benefits of Registering a Limited Liability Partnership
