In India, a company form called a One Person Company (OPC) is developed that enables a single person to function as a distinct legal entity. One Person Company registration is appropriate for start-ups and small businesses. The OPC permits the owner to have limited liability and is subject to the same legal restrictions as any other private limited business.
In other words, A One Person firm (OPC) is a type of business structure in India that allows a single person to incorporate and administer a firm. It was created by the Companies Act of 2013 to provide an appropriate business structure for small entrepreneurs that desire to operate as a limited liability company. One individual Company requires only one individual to participate as a director and shareholder. This indicates the individual has entire control and ownership of the business. They may, however, choose a nominee to take over management and ownership of the firm in the case of their death or incapacity.
The majority of entrepreneurs prefer an OPC registration over a sole proprietorship registration due to a number of its advantages. There are some of the main advantages as listed below:
- Easy Transfer of Ownership: By transferring the shares of the company, ownership of the business can be easily transferred In an OPC. However, this is not feasible in a Sole Proprietorship, because the owner and the business are considered as one entity. This can create a barrier in transferring the business ownership to someone else.
- Easy to Raise Capital: Investors, banks, and other financial entities are simple sources of capital for an OPC. This is so that an OPC, which can generate money by issuing shares and has a separate legal identity, can do so. As the firm and the owner are regarded as one thing, the owner of a sole proprietorship has few choices for raising capital. Due to this, it may be challenging for sole proprietorships to develop or grow their company.
- Limited Liability: Limited liability is an OPC’s main advantage over a sole proprietorship. In an OPC, the owner's liability is constrained to the company’s share capital amount. In the event that the business encounters any monetary or legal difficulties, the owner's personal assets are therefore not in jeopardy. In contrast, a sole proprietorship makes the owner personally responsible for all debts and losses caused by the company. This means that the owner's personal assets may be confiscated in order to settle obligations if the company ever experiences financial or legal difficulties.
- Separate Legal Entity: Another advantage is that an OPC has a different legal status from a single proprietorship. This shows that the company's legal personality is distinct from that of its owner. As a result, an OPC in India has the power to sign contracts, buy property, and file or respond to lawsuits. Because the owner and the company are seen as one, all business decisions made in a sole proprietorship are personally liable to the owner.
- Tax Benefits: OPCs in India are qualified for a variety of tax advantages, including reduced tax rates, deductions, and exemptions. This is due to the fact that OPCs are treated as independent legal entities for taxation purposes. In a sole proprietorship, the owner must pay personal income tax rates on the business's income. Sole proprietorships may have increased tax obligations as a result of this.
- Professional Image: An OPC registration gives a commercial enterprise a professional image, which may be helpful in luring clients and investors. This is so that it can comply with different regulatory requirements as an OPC is a recognized legal organization. This increases stakeholders' trust in the company and its operations. A sole proprietorship, on the other hand, can come across as less professional and have trouble luring clients and investors.
- Perpetual Existence: An OPC has permanent existence, which means it survives the death or resignation of its owner. This is because the OPC in India has its own unique identity and is a separate legal organization. In contrast, a sole proprietorship ends when the owner passes away or retires. For the firm and its stakeholders, this may lead to uncertainty and instability.
Finally, One Person Company (OPC) has a number of advantages over a sole proprietorship. Limited liability protection, a separate legal organization, continuity and succession planning, access to funds and investors, and a more professional image are some of the benefits. Entrepreneurs considering beginning their own business should carefully weigh these advantages as well as the long-term rewards and drawbacks of selecting OPC as their preferred business form.