Reasons To Go For One Person Company Registration In India

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Registering a one-person company is a great way for entrepreneurs and freelancers to start their own business legally in India. There are several benefits of opting for a one-person company registration such as low compliance requirements, tax benefits, and limited liability among others. In this blog, we will discuss the top 6 reasons to consider registering a one person company registration in india.

  • Low Compliance Requirements 

One-person companies have very low compliance requirements which makes them ideal for small businesses and startups with limited resources. As the name suggests, a one-person company only requires one director and one shareholder which can be the same individual. This removes the hassle of finding multiple people to hold key positions in the company. 

Further, a one-person company is exempt from preparing cash flow statements as part of its financial statements. The annual filings and documentation are also simpler compared to regular private limited companies. One only needs to file basic financial statements, directors report and annual returns. This significantly reduces the compliance burden and associated costs for sole proprietors. 

One-person companies also have relaxed rules when it comes to board meetings. As there is only one director, no formal board meetings need to be conducted. All decisions can be taken by the single director through circular resolutions. This provides a lot of flexibility to run the business operations smoothly without adhering to strict procedural norms. The low compliance makes one person companies very attractive for small businesses.

  • Tax Benefits

Opting for a one-person company registration allows sole proprietors to avail important tax benefits. As a company, the business is considered a separate legal entity and profits can be taxed at the company level instead of the individual level. 

For income up to Rs. 50 lakhs annually, one-person companies are taxed at a flat rate of 25% which is lower than the highest individual tax slab rate of 30%. Any profits above Rs. 50 lakhs are taxed at the normal corporate tax rate which is currently 22% plus applicable surcharge and cess. 

This allows businesses to reduce their overall tax outgo. Additionally, perks like tax deduction on investments in new plants and machinery are available. Individuals can also claim tax exemption on salary received as director of the one person company. These tax breaks make one person companies an attractive proposition.

  • Limited Liability 

One of the key advantages of registering a business as a company is limited liability. In case of debts or legal issues, the owner’s personal assets are protected and cannot be liquidated to pay off company liabilities. Only the investment in the company can be lost.

This provides a significant risk shield to entrepreneurs. Their personal homes, vehicles, savings etc. remain safe even if the business faces losses or lawsuits. With a proprietorship firm, the owner is personally responsible for all debts and liabilities of the firm. A one person company registration thus helps in separating business from personal finance.

This is extremely valuable for businesses dealing in sectors like manufacturing, construction or services where contractual obligations and unforeseen risks are common. Limited liability encourages entrepreneurs to take calculated business risks without fearing a personal financial downfall. It promotes innovation and growth. For these reasons, one person companies are very popular among freelancers and consultants who work on client projects.

  • Easy Conversion 

A one person company provides flexibility in terms of future expansion. If the business grows and requires additional shareholders or directors, it can be easily converted into a regular private limited company. 

The conversion process is simple, requiring just board and shareholder approval along with certain filings. This allows the business structure to evolve with the changing needs of the company. It also ensures there are no legal hurdles in raising funds from investors later on if the entrepreneur decides to expand.

Starting small with a one person company does not lock the entrepreneur in the limited structure forever. As the business and team grows, it can seamlessly transform into a private limited company that allows multiple shareholders and directors. This makes one person company registration a preferred first step for many new ventures.

  • Global Acceptance

As the registration process falls under the Indian Companies Act, a one person company provides legitimacy and recognition both within India and globally. It issues share certificates, holds a registered office and board meetings like any other company.

This global acceptance eases business operations in many ways. It inspires trust in clients, vendors and partners. One-person companies can also open bank accounts easily and participate in government tenders or projects without issues. 

For freelancers and consultants operating internationally, the company status lends credibility. It simplifies legal contracts and paperwork related to projects across borders. Overall, the one-person company structure provides a recognized business identity within India as well as a global platform to grow the enterprise.

  • Flexible capital contribution 

Unlike regular companies, a one person company only requires a minimum capital of Rs. 1 lakh. This makes it affordable for startups and entrepreneurs to legally set up their business without large initial investments. They can contribute the capital amount gradually as the business grows.

For example, an entrepreneur starting an e-commerce venture may contribute Rs. 50,000 initially towards the capital while running the business operations on a smaller scale. As sales start generating profits over 6-12 months, they can further contribute Rs. 25,000-Rs. 50,000 towards fulfilling the one lakh minimum requirement. This allows them to first test their business idea in the market without committing a substantial amount upfront. Once the venture proves profitable, the full Rs. 1 lakh capital can be infused within 2-3 years of operations as the business scales. The flexible contribution deadlines take some pressure off cash flow management for new ventures.

Conclusion

opc one person company registration provides several key advantages to entrepreneurs. The low compliance costs, tax benefits, liability protection and easy scalability make it an attractive choice for starting a legal business venture in India. With the five reasons discussed above, it is clear that one person companies offer a very viable company registration option for small businesses and startups in the country.