Advantages of a the Private Company over One Person Company

Once person company (OPC) is a form of company that is owned and managed by the single person.  The legal identity of the one person company is separate from its members thus the liability of the member of one person company is limited to his share only. At the time of incorporation, the sole owner of the company is required to appoint another person as his nominee and his name shall have to be mentioned in Memorandum of Association of the OPC.

The Private limited company is a privately held business which is carried out by one or more than one person who agrees to come together and carry out a business. It can be formed with minimum 2 members and maximum 200 members.

The various benefits of private limited company over the one person company are as follows-

  1. Foreign Direct Investment- Only private limited companies are empowered to receive foreign direct investment under Automatic Approval in most sectorswhereas, OPC cannot accept foreign direct investment. Thus, an OPC falls behind when it comes receiving FDI. Thus the private company is in an advantageous position to accept foreign direct investment.
  2. Nominee- Formation of the private limited company requires a selection of the proper nominee. This creates difficulties, as the nominees have a choice to withdraw their consent and thereby making it difficult for the individual to find another nominee, obtain his consent, amend his memorandum and communicate to the registrar. Such requirement does not exist in the private limited company case.
  3. Trusts- One Person Company generally fails to gain the trust of investors. As they feel that single person cannot handle the responsibilities of whole business solely. Further, in OPC the expertise and knowledge is limited to one person only, whereas in private due to presence of more than one member more knowledge and expertise is provided. That builds the trust of the investor.
  4. Tax Burden- There is more tax burden on the one person company as compared to the private limited company. This is because the concept of OPC is not recognized under the Income tax Act and hence such companies will be put in the same category as other companies for taxation purpose whereas, private companies have been placed under the tax bracket of 30% on total income. Thus, from the perspective of taxation, the concept of OPC becomes a less lucrative concept as it imposes heavy financial burden as compared to a sole proprietorship.
  5. Employee Stock Option- In One Person Company, the option of sweat equity and employee stock option is not available. ESOP is a very viable option for a startup who wants to provide a performance appraisal system in form of stock options. The private limited company can avail this benefit of issuing ESOP and the sweat equity shares.
  6. Transferring the shares- In the one person company, the shares of one person cannot be transferred from one person to another. While in private limited company shares can easily be transferred from one person to another.

 

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