Though an OPC structure has several advantages, it comes with several disadvantages too. Some of its disadvantages is discussed below:
Restricted Access to Capital Markets: One Person Companies cannot get its shares listed in any stock exchange through initial public offerings. With this restriction, One Person Companies may find it difficult to attract outside investors to buy the shares.
Only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company. Further a single person is not eligible to incorporate more than One OPC and become nominee in more than one such company.
Suitable only for Small Business: OPC is suitable only for small business. OPC can have maximum paid up share capital of Rupees Fifty Lakhs or turnover of Rupees two crores. Otherwise need to be converted into private limited. One Person Company cannot get converted into a private or public limited company unless two years has expired from the date of incorporation. Further One Person Company cannot be incorporated or converted into a company under Section 8 of the Act. Section 8 Company is not for profits companies.
Restriction on Business Activities: One Person Company cannot carry out Non – Banking Financial Investment activities including investment in securities of anybody corporate. Non Residents Indians are not allowed to incorporate a One Person Company in India.
High Tax Rates: Income tax rates applicable on private limited companies apply on One Person Company too, which is quite higher as compared to income tax rates applicable on proprietorship concerns.
Foreign Direct Investment: Foreign Direct Investment is not allowed in One Person Companies.
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