Advantages of One Person Company: OPC Benefits Explained

What is the Nature of a One Person Company in India?

As per the definition provided in the Companies Act 2013, an OPC is a private limited company with only one member. The sole shareholder of the OPC holds 100% of the company's shares and is entitled to all the profits generated by the business. The full form of OPC is "One Person Company," emphasising its single-member structure.

The importance of OPC lies in its ability to provide a formal corporate structure to sole proprietors and small business owners. By registering as an OPC, entrepreneurs can enjoy the benefits of a separate legal entity while maintaining complete control over their business operations. This unique combination of sole ownership and corporate features makes OPC an attractive choice for many budding entrepreneurs in India.

Benefits of OPC Company

Next up, let us understand why an OPC company will be right for you:

1. Benefits of Being Small Scale Industries

   One of the key advantages of a one person company is its eligibility to be registered as a Micro, Small or Medium Enterprise (MSME). By obtaining MSME registration, OPCs can avail various benefits provided by the government, such as:
   

   • Priority sector lending from banks
     

   • Collateral-free loans up to ₹10 lakhs
     

   • Subsidy on patent registration
     

   • Reimbursement of ISO certification expenses
     

   • Concession on electricity bills
     

   • Exemption from excise duties
     

   These MSME benefits can significantly reduce the financial burden on small businesses and help them grow faster.
   

2. Single Owner

   Unlike partnership firms or private limited companies, an OPC has only one owner who holds all the shares and has complete control over the company's decision-making process. This streamlined ownership structure offers several benefits for OPC company, such as:
   

   • Faster decision-making without the need for consensus among multiple partners or directors
     

   • Flexibility to adapt quickly to changing market conditions
     

   • Ability to maintain confidentiality of business strategies and plans
     

   • Elimination of potential conflicts among partners or shareholders
     

3. Credit Rating

   OPCs find it easier to obtain loans and credit facilities from banks and financial institutions than sole proprietorships. This is because OPCs have a separate legal identity and their financial statements are available in the public domain, allowing lenders to assess their creditworthiness more accurately. A good credit rating can help OPCs secure funding at competitive interest rates, providing a significant advantage over unregistered businesses.
   

4. OPC Benefits under Income Tax Law

   OPCs enjoy certain one person company tax benefits under the Income Tax Act, 1961. Some of these advantages include:
   

   • Lower corporate tax rate of 25% for OPCs with an annual turnover of up to ₹250 crores.
     

   • Exemption from Minimum Alternate Tax (MAT) for OPCs with an annual turnover of up to ₹5 crores.
     

   • Ability to carry forward and set off losses for up to 8 years.
     

   • Deduction of up to ₹1.5 lakhs under Section 80C for investments made by the OPC owner.
     

   These tax benefits can help OPCs optimise their tax liabilities and retain more profits for reinvestment in the business.
   

5. Received Interest Rate on any Late Payment

   Under the MSME Development Act, 2006, OPCs registered as MSMEs are entitled to receive interest on delayed payments from their buyers. If a buyer fails to make payment within 45 days of accepting the goods or services, the OPC can charge an interest rate of three times the bank rate notified by the Reserve Bank of India (RBI). This provision helps ensure timely payments and improves the cash flow situation for small businesses.
   

6. Increase in Trust and Status

   By registering as an OPC, small businesses can enhance their credibility and reputation in the market. The formal corporate structure and public disclosure of financial statements instil greater trust among customers, suppliers and other stakeholders. This increased trust can lead to better business opportunities, higher customer loyalty and improved bargaining power in commercial transactions.
   

7. Easy Funding

   Apart from institutional funding, OPCs can also raise capital from individual investors. The Companies Act allows OPCs to issue shares to up to 200 shareholders, providing an alternative route for raising funds. This option can be particularly useful for OPCs with high growth potential, as they can attract angel investors or venture capitalists to fund their expansion plans.
   

8. Limited Liability

   One of the most significant benefits of OPC is the limited liability protection it offers to the owner. Unlike sole proprietorships, where the owner's personal assets are at risk in case of business liabilities, an OPC provides a corporate veil that separates the owner's personal assets from the company's obligations. In the event of any legal disputes or financial losses, the liability of the OPC owner is limited to the extent of their investment in the company.
   

9. One Person Company Tax Benefits

   In addition to the income tax benefits mentioned earlier, OPCs also enjoy several other tax advantages. For instance, OPCs with an annual turnover of up to ₹2 crores can opt for the presumptive taxation scheme under Section 44AD of the Income Tax Act. Under this scheme, the OPC is required to pay tax on only 8% of its total turnover, reducing the compliance burden and tax liability significantly.
   

10. MSME Benefits

    As discussed earlier, OPCs registered as MSMEs are eligible for various government schemes and subsidies. Some additional benefits include:
    

    • Preference for government tenders
      

    • Assistance in marketing and export promotion
      

    • Subsidies for participating in international trade fairs
      

    • Skill development and training programs for employees
      

    • Access to credit guarantee schemes
      

    These benefits can provide a much-needed boost to small businesses, helping them compete with larger players in the market.
    

11. Ease of Management

    Managing an OPC is relatively simpler compared to other business structures. With a single owner and no board of directors, decision-making is faster and less complicated. 
    

    Additionally, OPCs have fewer compliance requirements under the Companies Act. For instance, OPCs are not required to hold annual general meetings or prepare cash flow statements. This reduced compliance burden allows OPC owners to focus more on their core business activities.
    

Eligibility Criteria for OPC

To register as an OPC, the following eligibility criteria must be met:

• The OPC must have only one member who is an Indian citizen and resident. This ensures that the business is managed by someone who understands local regulations and market conditions.
  

• The sole member must be a natural person, not a company or an institution. This stipulation reinforces the OPC's structure as a personal enterprise.
  

• The member should not be a minor to ensure legal competency in business dealings.
  

• The member should be of sound mind and not be declared insolvent by any court. This criterion ensures that the individual can manage the company's affairs effectively.
  

• The member should not have been convicted of any offence related to company formation or management in the past five years, which helps maintain the integrity of business practices.
  

• The member should not be a nominee or shareholder in any other OPC.
  

OPC Registration Process

The OPC registration process involves the following steps:

The registration process for an OPC is streamlined and can be completed online through the Ministry of Corporate Affairs - MCA portal. Here are the essential steps involved:

• Obtain a Digital Signature Certificate (DSC): The first step is to acquire a DSC for the sole member, which is necessary for signing electronic documents during the registration process.
  

• Apply for Director Identification Number (DIN): Following the DSC, the next step is to apply for a DIN, which is required for the proposed director of the OPC.
  

• Name Approval: The applicant must submit an application for name approval using Part A of the SPICe+ form on the MCA portal. It is advisable to propose at least two names to ensure one can be approved.
  

• Prepare Necessary Documents: Essential documents include: 

  • Memorandum of Association (MoA) and Articles of Association (AoA)
    

  • Proof of registered office address
    

  • Consent from the nominee
    

  • KYC documents for both the member and nominee

• File SPICe+ Form: Once all documents are prepared, submit Part B of the SPICe+ form along with all necessary attachments to complete the application for incorporation.
  

• Payment of Fees: Pay the requisite registration fees online, which may vary based on the company's nominal share capital.
  

• Certificate of Incorporation: If all details are accurate and compliant with regulations, the Registrar of Companies (ROC) will issue a Certificate of Incorporation, officially recognising the OPC as a legal entity.

This structured approach not only simplifies the registration process but also ensures that all legal requirements are met efficiently, making it easier for entrepreneurs to start their businesses as a One Person Company in India.

Conclusion

OPC offers a unique blend of sole ownership and corporate features, making them an attractive choice for solo entrepreneurs and small business owners in India. The benefits of an OPC company are numerous, ranging from limited liability protection and separate legal identity to tax advantages and easier access to credit. 

Additionally, the reduced compliance burden and simplified management structure make OPCs well-suited for individuals who want to focus on their core business activities without getting bogged down by excessive paperwork.

To register as an OPC, an individual must meet certain eligibility criteria and follow the prescribed registration process. Once incorporated, an OPC can enjoy various benefits available to MSMEs and small-scale industries, helping them compete effectively in the market.

In conclusion, the One Person Company is a progressive business structure that encourages solo entrepreneurship and facilitates the growth of small businesses in India. By providing a formal corporate framework with minimal compliance requirements, OPCs have opened up new avenues for aspiring entrepreneurs to turn their ideas into successful ventures.