This article was written by Madhurima Dutta, a student of RMLNLU, Lucknow.
The innovative new concept of ‘One Person Company’ (OPC) was first recommended by the expert committee of Dr. J.J. Irani in 2005 and has been introduced by the Companies Act, 2013. As the name suggests, a one person’s company is formed with only one person as its member, these companies enjoy certain privileges or exemptions as compared to other companies.
Why one should start a One Person Company?
OPC will enable a whole new range of opportunities for those who look forward to start their own ventures with a configuration of organized business. OPC will give an entrepreneur all benefits of a private limited company which essentially means they will have access to credits, bank loans, limited liability, legal protection for business, access to market etc all in the name of a separate legal entity. It is a substantial shift from existing concept where at least two persons were required to incorporate a private company. OPC is best suited for start-up ventures, propriety businesses etc. since it offers a business platform which allows absolute control over all business affairs with limited liability.
What is the impact of OPC in Indian Entrepreneurship?
However the concept of an OPC is still very new in Indian entrepreneurship and will require few years for this concept to be accepted amongst the public. However, with passage of time, OPC will be embraced as a most successful business structure due to its benefits and features. Some of the main features of an OPC are, less paper work, ability to form a company without any additional shareholder, and if the member is keen to add shareholders, all he needs to do is to alter the Memorandum of Association and file it before RoC (Registrar of Companies). Small entrepreneurs will grow in Indian entrepreneurship, be it weaver, traders, artisans, small to mid level entrepreneurs, OPC is a brilliant future for them to grow and to get recognition globally. Foreign investors will be dealing with one member to establish a corporate relationship and not with a score of shareholders/directors where there are further chances for discrepancy in ideas, concepts etc for a business to nurture. Any foreign company who desires to set up in India through an investment, through a merger or through a joint venture will have to lock the deal with the member of an OPC, and the venture will be likely to start quicker with more effective results. In upcoming years the impact of an OPC will be remarkable and it is a promising future for Indian entrepreneurship. Expectedly, there will be good foreign investments, joint ventures, and mergers etc. OPC, as a business entity, is doing well in European countries, in United States, and Australia, and the same is resulting in strengthening the economy of the countries. In India an OPC, is solely aimed for the structured organized business, with a different legal entity altogether and to organize the private sector of the entrepreneurship, which indeed is expected to be done, along with a significant growth in Indian economy benefiting the country on the global stage.
What are the Benefits & Drawbacks of an OPC?
The biggest advantage of a one person company is that its identity is distinct from that of its owner. Therefore, if the firm is involved in a legal controversy, the owner might not be personally liable.
Another advantage is limited liability. Since the company is discrete from that of its owner, the personal assets of the shareholders and directors remain protected in case of a credit default. However, a proprietorship offers no such advantage.
OPC will bring the unorganised sector of proprietorship into the organised version of a private limited company. A range of small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The organised version of OPC will open the avenues for more encouraging banking facilities. Proprietors will always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member will be limited.
On the other hand, an OPC is not easy to set up. For one, it requires a lot of paperwork and is a time-consuming process. You also need to factor in the cost of establishing such a firm. For instance, you need to get a lawyer or company secretary to help you draft the memorandum and articles of association.
Though you can draft them yourself, it is advisable to take professional help as these are the by-laws that govern your company. The process may cost upwards of Rs 2 lakh.
Apart from this, you need to consider the tax implications. The company will be taxed at 30%, which may be higher than the 10-30% for a business that is not incorporated. Other types of taxes, such as the minimum alternate tax and dividend distribution tax, may also be applicable.
OPC will give greater flexibility to an individual or a professional to manage his business efficiently and at the same time enjoy the benefits of a company. The concept of OPC will also help many foreign companies, which need to appoint a minimum of two nominees now when they form a wholly-owned subsidiary. OPC will open the avenues for more favourable banking facilities, particularly loans, to such proprietors.
Besides, the concept will boost flow of foreign funds in India as the requirement of nominee shareholder would be done away with. Therefore an OPC gives you all the benefits that come with a private limited company. However, if legal compliances don’t go well with you, your business still has the option of being run as a sole proprietorship.