Advantages And Disadvantages Of One-Person Company Registration

What Do You Understand by OPC?

There is an increase in the spirit of enterprising people, cutting down their dependence on employer’s checks and opting for their own business. Of all the company structures that are possible, the One Person Company (OPC) model has attracted a lot of attention. OPC Registration has been legalized in India through the Companies Act of 2013 and became quite an innovative practice for an individual who wished to start his business and did not want to have partners/shareholders.

Advantages of OPC Registration in India:

1. Limited Liability Protection

Without a doubt, the primary advantage of OPC Company Registration is the limited liability, companies offer to the entrepreneurs. It is very important to know that a sole trader has unlimited liability for commercial risks, implying that business debts cannot be paid using the entrepreneur’s property or savings. One of the most effective ways to Unlock Business Potential With OPC Registration where the owner is only liable to the extent of the money invested in the business. Personal assets stay private, which makes the situation more secure for the businessman.

2. Separate Legal Entity

In the case of OPC Registration, your business entity operates independently from you. This means that the business entity formed can acquire properties, invoke or defend legal action, and sign contracts on its own initiative. It also separates the individual from the business, which makes it easier to gain the customer and supplier as well as the lender's trust. Also, this separate legal status helps to raise the necessary funds from outside, if necessary.

3. Easy to Manage

The management of an OPC is not very complex as there is one thought process and no conflicting opinions from shareholders or partners. Since it is owned by a single person, decisions are easier to make and compliance easier than in private limited companies. For instance, an OPC is not bound to conduct the Annual General Meeting (AGM) or appoint directors for that purpose, which makes it easier for first-time businessmen to manage.

4. Tax Benefits

One Person Company Registration also offers quite a number of benefits when it comes to taxation. Like other registered companies, OPCs also have rights to certain deductions and exemptions that are in the Income Tax Act. Furthermore, the Audit Requirements for One Person Company Registration includes headline tax rates are higher for sole proprietorships and, unlike individuals’ income tax, OPCs may also apply for corporate tax rates. The options of OPC Company Registration offer an entrepreneur the opportunity to pay fewer taxes while using corporate advantages.

5. Perpetual Succession

In the case of the death of the owner, the sole Proprietor Registration will come to an end. But in OPC Registration, one gets the advantage of the notion of the legal entity’s perpetual succession. During the OPC registration, the owner is supposed to appoint a nominee. It also means that in the event the owner dies or is incapacitated, the nominee who takes over the business makes sure that the company remains in existence perpetually.

6. Higher Authority and Familiarity

A firm that is incorporated and which has undertaken OPC Registration is generally considered by consumers more credible than the unregistered or sole trader business. On the same note, it was also equally important to have a registered company to do business with potential customers, partners, and investors. It also creates the possibility of learning opportunities with other large organisations, which may not have business relations with unregistered businesses.

Disadvantages of OPC Company Registration:

As stated earlier, there are many benefits that accrue from OPC Registration but like anything else in life, there are also certain drawbacks that one has to know so that he or she does not rush and Register the One Person Company he or she founded as a one-person entity.

1. Few and Stiff Business Expansion Activities

The main disadvantage of OPC Company Registration is that the number of members is limited. As it concerns OPCs are meant for single-owner companies, there is no room for incorporation of shareholders or partners. This limitation can become an acute problem when the business expands and needs outside financing or partnership.

But, where the paid-up capital is more than ₹ 50 Lacs or turnover is more than ₹ 2 crores, this OPC needs to be converted into a private limited company. The change of use of such facilities may also require extra papers and meetings to conform to, therefore the process is an inconvenience for the owner.

2. More Stringent Legal Reforms Than Sole Trader

Even though OPC Registration costs less than a private limited company, it still has reinforced standards of compliance than a sole trader. The owner is to provide annual financial returns, keep and produce accounting records, and deliver periodic returns to the Registrar of Companies. As much as it may not seem like a lot of compliance, it is still higher than the amount of compliance that sole proprietors go through.

3. Venture Capital/Equity Funding Bummer

In case you want to expand your company’s operations by attracting venture capital or equity financing, then OPC Registration might not be for you. Since an OPC can only exist with one shareholder, it has not been possible to offer stakes to investors to increase capital. Venture capitalists and angel investors can typically only invest in businesses that provide equity shares and as pointed out above this is not possible in the OPC framework.

This restriction can be quite challenging especially to companies that are expanding at a Fast Pace and hoping to penetrate new markets. In such circumstances, conversion of the OPC into a private limited company may become inevitable, but that requires legal and formalities to accomplish along with restructuring.

4. Nominee Requirement

Even though the appointment of a nominee is essential for the continuation of business, this factor also has its disadvantages. The nominee has to provide written consent and replacing the nominee may not be an easy process. Moreover, most of the nominees do not play the role except in situations where the owner is incapacitated or dead whereby problems may arise since the nominee lacks knowledge of the company operations.

5. Lesser Privileges than Private Limited Companies

Despite the facts stated above, OPC Company Registration may not allow the business to access all the advantages that are associated with private limited companies. For example, private limited companies are less restricted in their share capital, and easier share capital mobilization, and these companies are trusted and easily recognized by investors and other financial institutions.

Conclusion

For people who have already set up a small/medium-scale business and wish to ensure limited liability protection, OPC Registration is an ideal option. It comes with the advantage of a corporate form of carrying out business but it is easy to manage.

But if you have plans for fast growth and external financing, and you want to attract shareholders or partners, an OPC may not be ideal for you. In such cases, you may need to opt for registering a private limited company only, it is not too complex as well as not too simple. The best structure for your business also depends on the type, size, and entrepreneurial structure to be used in the future.

Regardless of whether you go for OPC registration or any other form of organization, you must reach out to LegalRaasta, a firm that specializes in Company Registration. Our experienced team has served clients with successful company registrations at the best prices.