Do you want to register a One-Man Company? Know the disadvantages.
One of the major disadvantages of registering a company is that one-person companies cannot incorporate or register another one-person company, and their nominees cannot become nominees in another one person company.
- B) Limits on capital and turnover
Company (Incorporation) Rules, 2014, Rule 6
(a) A One Person Company cannot remain a One Person Company if its average annual turnover exceeds Rs 2 crore (two crore rupees) and its paid-up share capital exceeds Rs 50 lakh (fifty lakh rupees).
What is the method for calculating average annual turnover?
Calculate a three-year average of annual turnover.
In the event of either of these conditions being met, OPC is unable to continue doing business.
(2) One Person Company must convert itself, within six months of its paid-up share capital exceeding fifty lakh rupees or the end of its average annual turnover exceeding two crore rupees, into either a private company with a minimum of two members and two directors or a public company with a minimum of seven members and three directors.
There are many limitations to expansion in a one-person firm.
Any officer of a One Person Company who violates these rules shall be fined up to ten thousand rupees, plus one thousand rupees for each day the violation continues.
One-person companies are commonly believed to be less expensive to register than private limited companies. This isn’t the case, however. One-person companies require two people to register (the owner and the nominee), unlike private limited companies, which require at least two people. Amounts of authorized capital will affect fees and stamp duty. All companies, regardless of whether they are OPCs or private limited companies, must register and pay stamp duties.
OPC only requires one digital signature certificate per director, whereas private companies require two.
- d) A person company’s compliance rate after registration is lower than that of a private limited company. The myth persists, however. A one-person company and a private limited company comply with the same laws.
Additionally, a one-person company is required:
- to file Income Tax return (ITR)
- to file annual return with Registrar of companies (ROC)
- to get its account audited by the chartered accountant in practice.
- to file its GST returns
- to file its TDS Returns etc.
A difference does not exist when it comes to post-registration compliance.
Due to the fact that one-person companies cannot issue shares or divide ownership, they cannot attract investors. The number of members of a private limited company, on the other hand, cannot exceed 200. Private limited companies can attract investors by offering shares. A one-person company cannot raise funds in any other way than by taking out loans. A limited company is more likely to be financed by a lender than a sole proprietorship.
(OPC) Private Limited refers to one-person companies. The use of ‘OPC’ actually decreases value, rather than increasing it. The name OPC is often associated with low-potential companies. A one-man company’s reputation in the industry is lower than that of a private limited company.
Several disadvantages of one-person companies were discussed, including registration, compliance, finance, expansion, and reputation.
Because the registration and compliance costs for a one-person LLC and a private limited company are similar, it is recommended that you form a private limited company instead.