Explained: The Perks of Setting up a One Person Company in India
With new startups blooming across the country, the government has introduced a relatively new concept of One Person Company in India. As per section 2(62) of companies act 2013, a One Person Company is a company having only one member. The reason behind its popularity is the flexibility that it offers. It provides limited liability, something that lacked in a sole proprietorship or partnership.
Several leading countries had already been using a one-person company as a business model before India recognized the potential of this option in 2013. Since then, the popularity of OPC has been growing due to the advantages it offers.
These advantages of one person company will help you make the right choice in deciding the business structure:
This is actually the most important reason for incorporating a one person company in India. A member’s liability is limited by unpaid subscription money. Sometimes, businesses may have to go through unfortunate events, and thus the company may have to go down. In an OPC, even if the business fails to pay its liabilities; the assets of the entrepreneur will be secured.
According to the constitution of India, section 2(68), a One Person Company is a type of a private company. Therefore, the rules that apply to a private company also do to an OPC. However, OPCs have been exempted from several things and thus have lesser compliance burdens.
Compared to other types of companies, the requirements to incorporate a one person company are minimal. These are the requirements:
- 1 Shareholder
- 1 Director (the same person can be both Shareholder and Director)
- A Nominee
- Use OPC as a suffix with the name of the company.
Easier Loans from Banks
Banks prefer to sanction loans to a private company rather than firms. They even suggest that a firm should convert itself into a private limited company to get loans. Therefore, for a startup, it is better to register as a One Person Company than a proprietorship firm.
Complete Control of Company
Having only one member, the entrepreneur can make decisions as per their will and will not have to worry about others’ opinions or approval. This improves the company’s work efficiency. However, a one person company in India can appoint up to 15 directors for administration purposes without having to make them shareholders.
Easy to Manage
A One Person Company is easy to manage as it does not have to conduct any board meetings to reach decisions. Additionally, there aren’t any Annual General Meetings (AGM). Under section 188, when there is only one member, businesses are entered into the minute’s book maintained.
A one-person company, being a type of private company, enjoys the status of a separate legal entity. This makes it more trustworthy as a business for others to deal with. The status of a private limited company allows an OPC to attract a quality workforce and give corporate designations to them.
Flexibility in Taxes
In an OPC, the company can come into a contract with the shareholder. As a director, you can receive remuneration. The entrepreneur can lend money to their own company and receive rent. These remunerations, rents, and interests reduce the profitability of the company and thus, the taxes are also reduced.
If you have an idea for a company that you are willing to incorporate in India but the lack of legal knowledge and experience is holding you back, reach out to 3E Accounting India. We have the experience and resources required for a business to incorporate in India. We command a team of specialists who can explain the advantages of one person company. They have in-depth knowledge of legal matters, government policies, and strategies to assist you in establishing your One Person Company in India and lead it down the path of success.