“Discover the advantages of One Person Company (OPC) compared to Sole Proprietorship in India. Explore limited liability, separate legal entity, continuity, and compliance requirements. FAQs on OPC formation, directors, capital, conversions, and fundraising. Learn about the unique features that make OPC a preferred choice for entrepreneurs. Get insights from a Chartered Accountant with expertise in Company Law, Audits, and Taxation. Connect with the author for personalized business advisory services.”
In recent years, the concept of a One Person Company (OPC) has gained popularity as a legal structure for businesses in India. OPC provides a unique opportunity for entrepreneurs to establish and manage a company with the benefits of limited liability. In this blog, we will delve into the intricacies of OPC, compare it with the traditional sole proprietorship, and explore the compliance requirements associated with OPC in India.
Understanding One Person Company (OPC): An OPC is a type of company structure introduced under the Companies Act, 2013, allowing a single individual to form and operate a corporate entity with limited liability. This enables small businesses and startups to enjoy the advantages of a corporate structure without the need for additional shareholders.
Comparison with Sole Proprietorship:
1. Limited Liability: One of the key advantages of OPC over sole proprietorship is limited liability. In a sole proprietorship, the owner is personally liable for all the debts and obligations of the business. In OPC, the liability of the sole member is limited to the extent of the capital invested, protecting personal assets from business risks.
2. Separate Legal Entity: OPC is a separate legal entity, distinct from its founder, while a sole proprietorship is not considered a separate legal entity. This distinction allows OPC to enter into contracts, acquire assets, and conduct business in its own name.
3. Continuity: OPC offers better continuity as it can survive beyond the lifetime of its founder. In the case of a sole proprietorship, the business ceases to exist upon the demise or incapacity of the proprietor.
4. Compliances and Governance: OPC is subject to more stringent compliance requirements compared to sole proprietorship. It must maintain proper books of accounts, conduct annual audits, file annual returns, and adhere to other statutory obligations applicable to private limited companies.
Most important FAQs of One Person Company
1. Who can form an OPC?
Any individual who is an Indian citizen and resident in India can form an OPC. Non-resident Indians (NRIs) and foreign nationals are not eligible to incorporate an OPC.
2. Can an OPC have more than one director?
Yes, an OPC can have more than one director.
3. Is there a minimum capital requirement for OPC?
No, there is no minimum capital requirement for OPC. It can be incorporated with any amount of capital as per the discretion of the member.
4. Can an OPC convert into a private limited company?
Yes, an OPC can convert into a private limited company
5. What are the compliance requirements for OPC?
OPCs are subject to compliance requirements similar to private limited companies. This includes maintaining proper books of accounts, filing annual returns, conducting audits (if applicable), and complying with the provisions of the Companies Act, 2013.
6. Can an OPC raise funds from external sources?
Yes, OPCs can raise funds from banks, financial institutions, or venture capitalists. They can also issue shares to attract investment.
7. Can an OPC be converted into a sole proprietorship?
No, an OPC cannot be converted into a sole proprietorship as it is a separate legal entity. However, an OPC can be closed or converted into a different type of company.
8. Can an OPC appoint a corporate entity as its member?
No, only individuals can be the members of an OPC. Corporate entities, NRIs, and foreign nationals are not eligible to become members.
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Author is A Practicing Chartered Accountant with over 5 years of rich experience in Company Law, Audits, Accounts & taxation. She is keen in streamlining business accounts of the Company and provide Business advisory services She can be connected on sweta@caswetamakwana.com or on 9819244185
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