Why One Person Company (OPC Pvt Ltd) is not feasible ?

  1. A) One of the biggest disadvantage of company registration is that the owner of one person company cannot incorporate or register another one person company and the nominee of one person company cannot become nominee in another opc. 
  2. B) ) Maximum Turnover and Capital Limit

As per Rule 6 of Company (Incorporation) Rules, 2014 

(a) If the paid-up share capital of a One Person Company exceeds Rs 50 lakh (fifty lakh rupees) and its average annual turnover during the relevant period exceeds Rs 2 crore (two crore rupees), it cannot remain a One Person Company.

How average annual turnover is calculated ?

A three-year average of annual turnover is calculated.

It is impossible for OPC to continue doing business if either of the above conditions is fulfilled. 

(2) The One Person Company shall convert itself, within six months of the date on which its paid up share capital exceeds fifty lakh rupees or the last day of the relevant period during which its average annual turnover exceeds two crore rupees, into 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, whichever is the case.

There is a great deal of restriction on the expansion of business or profession in a one-person company due to this.

If One Person Company or any officer of the One Person Company violates these rules, that company or its officer shall be subject to a fine of up to ten thousand rupees and to a further fine of up to one thousand rupees for each day that such a violation occurs after the first.

  1. C) Most people think that registering a one person company is less expensive than registering a private limited company. It is not true, however. One person company registration requires two persons (one is the owner and the other is the nominee), in contrast to private limited company registration, which requires at least two people. Depending on the amount of authorized capital, registration fees and stamp duty will vary. Registration fees and stamp duties apply to all companies, whether they are OPCs or private limited companies.

One difference between OPC and private companies is that OPC requires the digital signature certificate of one director while private companies require two.

  1. D) A person company, after registration, is believed to have a lower compliance rate than a private limited company. This is an urban legend, however. In terms of compliance, one-person companies and private limited companies are the same.

A one person company is also 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.

As far as post-registration compliance is concerned, there is no difference. 

  1. E) One-person companies cannot attract investors as they are unable to issue shares or divide ownership since there is only one owner. By contrast, private limited companies are limited to 200 members. In this way, a private limited company is able to offer shares and attract investors. One person companies are unable to raise funds other than by taking out loans. Banks and financial institutions prefer to grant loans to limited companies over sole proprietorships. 
  2. F) One person companies are named (OPC) Private Limited. As a result of ”OPC” being used here instead of increasing value, it actually decreases it. When a person sees the name of the company as OPC, they tend to perceive it as a low-potential company. Private limited companies have a higher reputation in the industry than one-person companies. 

The disadvantages of one-person companies were discussed, whether they were registration, compliance, finance, expansion, or reputation.

Accordingly, if you are planning to form a company, you should consider a private limited company instead of a one-person LLC since the costs of registration and compliance are the same.

Read more

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Company Registration: Myths and Facts

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