Liability for an OPC

An important step towards the registration of One Person Company under the Companies Act, 2013 is that it makes possible for one person to form a business and take use of the advantages of both a private limited company and a sole proprietorship. Following the Companies Act 2013, this idea became accessible. Supporting small business ownership and corporatization was one of the OPC’s primary goals. Let us discuss about the features and liability of an OPC.

Overview of One Person Company

OPC is the best option for independent contractors who wish to operate under an enterprise structure and maintain efficient control over all business processes. An entrepreneur must register with the OPC in order to create a limited liability company. A One Person Company (OPC) is a special organization that allows an individual to establish a company under the Companies Act of 2013. It blends the ideas of succession and limited liability companies, enabling an individual to own and run the business under their own name.

The one person company examples include Truffle House (OPC) Private Limited, Broombikes, and Arkan Diary (OPC) Private Limited. 

Features of One Person Company

The features of OPC are shown below-

• Perpetual succession: OPC provides perpetual succession options. After the death of a member of the company, the nominee can manage the company.

• Limited liability: The liability of the member in an OPC is limited and therefore, the personal assets of the member is safe in case of unforeseen circumstances.

• Sole Shareholder: A single member is more than enough and acts as a shareholder with all responsibilities.

• Separate Legal Entity: Unlike a sole proprietorship, an OPC is considered separate from its owner. The separate legal entity of the OPC allows the company to enter into contracts, own assets in its name, sue and can be sued by others.

Also read- Procedure to Incorporate One Person Company in Rajasthan

Advantages of OPC

The advantages of OPC are-

• OPCs have been granted with a number of exemptions and therefore have less compliance burden than membership of a Private Limited Company.
• Minimum requirements and compliances
• The member’s liability will be limited to unpaid subscription money.
• Easy to get loans from banks as compared to own proprietary firm.
• Complete control and easy-to-operate

Disadvantages of One Person Company

The disadvantages of One Person Company are-

• Suitable for small businesses only
• A person shall not be entitled to establish more than one company or become a nominee in more than one such company
• NRI not allowed to incorporate OPC
• OPC cannot carry out non-banking financial investment activities, including investments in securities
• OPC cannot be incorporated or transferred to a company under Section 8 of the Companies Act.

Liability of an OPC

As OPC is a separate legal entity, shareholders are not required to view the company’s responsibilities. Business is inherently unpredictable and, in the case of corporations, frequently outside the purview of the member, director, or owner. Fortunately, if an unfavorable occurrence happens, the personal assets of the business owner are completely secure. Meanwhile, an OPC’s limited liability system limits the shareholder’s liability to the amount of unpaid subscription funds.

Protection from Limited Liability for Directors and Shareholders

The comparison of OPC with Sole Proprietorship highlights the liability feature of One Peron Company. The desire for minimal responsibility is undoubtedly the primary motivator for entrepreneurs to establish a “sole proprietorship”. However, in an emergency, it is essential to safeguard the personal assets of the entrepreneur as they are not always in control of unfavorable events that affect their company. 

A shareholder’s liability in an OPC is limited to his share; while in a sole proprietorship, the owner’s personal assets may be at risk. This implies that the entrepreneur’s personal funds or assets will not be impacted by any losses or debts that are solely of a company character.

In the event that a sole proprietorship is insolvent, the individual is responsible for fulfilling its financial commitments; while in case of an OPC, the individual has limited liability. Limited liability is a benefit that the OPC offers to its members. This means that their liability is restricted to the amount of outstanding subscriptions.

Conclusion

The liability of an OPC is now clear and there are several advantages such as the ability to use funds easily, limited liability and generally less compliance, which make this type of company more advantageous than a sole proprietorship. The concept of OPC will certainly attract many young entrepreneurs to establish their business competently. The OPC concept has been quite successful in other countries and the same can be expected in India.

In case of any query regarding liability of an OPC, a team of expert advisors from Legal Window is here to assist you at every step. Feel free to reach us at [email protected].