All you need to know before choosing One Person company as a form of business

All you need to know before choosing One Person company as a form of business

Introduction

One Person Company is introduced newly under the companies act, as the name suggests it lets a single person to form and register a company under the Companies Act.

Features of a one person company

  • It has only one member
  • No minimum capital is required to start, and it can have maximum Paid up share capital of Rs.50Lakhs
  • It can have only 1 director and maximum 15 directors
  • Term “One person company” must be mentioned below the name of the company.

Factors to be considered

Benefits of a One Person Company

  1. Sole proprietorship in corporate form: A one person company will be a separate person in the eyes of law, i.e. its member and “the one person company” will both enjoy individual existence different from one another.
  1. Limited Liability: With separate legal existence, comes this very important benefit. Unlike the sole proprietorship and partnership firms, where the owners have an unlimited liability, the liability of the company is different from its members. Liability for repayment of debts and lawsuits incurred by the Company, lies on it and not the owner.
  1. More flexible than other companies: A company registered as a one person company would have lesser compliances than a public limited company or a private limited company. There are many relaxations which are given to the OPC which are not available to other private limited company such as there is no need to hold the annual or general meeting every year, there is no need to maintain the quorum during the meetings, no need to maintain the minutes as there is no need to held the general meetings, very few forms are required to fill the forms for the ROC filing etc.
  2. Better standing than Sole proprietorship or traditional partnerships: A one person company would have a better standing as the traditional forms of business have nearly no compliances to meet while OPC being a corporate form must meet compliances under the companies Act which gives it a better image and standing.
  1. Increased credibility: As it becomes a corporate entity after its incorporation it allows small enterprises to easily avail loans and the credit facilities from the bank which where before available to only the private limited companies.

Limitations of a One Person Company

  1. Restriction on issue of shares: Unlike a Public limited company, which can issue its shares to public, a one person company must restrict its shares to its members. Also, there are restrictions on transfer of shares
  1. Cannot accept public deposits: A one person company cannot accept deposits from the public and it can take loans only from shareholders, directors and relatives of directors.
  1. Less flexible than partnerships and proprietorships: An OPC will be less flexible than sole proprietorship or traditional partnership as it will have greater compliances to meet than the traditional forms.
  1. Greater tax burden: A OPC would be taxed at corporate tax rate while an individual doing business with Sole proprietorship structure would enjoy the slab rate for individuals.
  1. Restriction in conversion: Once OPC is incorporated it cannot be converted to any private or public limited company until the expiry of 2 years from the date of incorporation.
  1. Suitable for only small businesses: OPC can have maximum Paid up share capital of Rs.50Lakhs or Turnover of Rs.2 Crores. Otherwise OPC need to be converted into Private Ltd Company.

Compliances to be met

Here is the list of some general compliances under various laws which a One person company must meet

Under Companies Act

  1. Filing of annual return (MGT 7): within 60 days of holding the AGM (Annual general Meeting)
  2. Filing of financial statements (AOC-4): within 30 days of holding the AGM (Annual general Meeting)
  3. Appointment of statutory auditor: within 30 days of incorporation
  4. Statutory Audit of accounts: to be conducted by the appointed statutory auditors

Under Income Tax

  1. Calculation and Quarterly Payment of Advance Tax
  2. Filing of Income Tax Returns
  3. Tax Audit & Filing of Tax Audit Report – Mandatory in case sales, turnover or gross receipts of a business exceed Rs. One Crore in the previous year relevant to the assessment year.

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