This concept of One Person Company (OPC). The concept of OPC was first recommended by the expert committee of Dr. J J Irani in 2005. Based on these recommendations, the concept of OPC was introduced in the Companies Act, 2013. However, the aforementioned Act holds some restrictions on the rules governing OPC which have been relaxed in the Union Budget 2021-22. OPC provides an opportunity to those who look forward to starting their own start-ups with a structure of organized business with continuous access to financial, legal, market resources.
Section 2(62) of Companies Act, 2013 defines an OPC as a company that has only one person as a member. Now, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. So, an OPC is effectively a company that has only one shareholder as its member. These companies get all the benefits of a private company such as they to have access to credits, bank loans, limited liability, legal protection, etc.
The word “One Person Company” shall be mentioned in bracket below the name of such company, wherever its name is printed, affixed or engraved.
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Privileges of OPC:
OPC’s benefit from the following privileges and exemptions under the Companies Act:
- OPCs don’t have to conduct annual general meetings.
- Cash flow statements need not be included in their financial statements.
- Directors could sign the annual returns too; a company secretary is not mandatorily required.
- Provisions in regard to the independent directors are not applied to OPCs.
- Directors can take home more remuneration as compared to other companies.
Characteristics of OPC:
One Member Company:
A natural person who is a resident of India and also a citizen of India can form an OPC. He / she who forms OPC owns 100% stake in the company. The act has also said that a person can be a shareholder in only One OPC at any given time.
Eligibility of a Minor:
Minor cannot become a member or nominee of the One Person Company or can hold share with beneficial interest.
One Director:
OPC Must have at least one director. The sole shareholder can himself be the sole director. As per the Act, the total number of directors shall not be more than 15.
Private company:
Section 3(1)(c) of the Companies Act says that a single person can form a company for any lawful purpose. It further describes OPCs as private companies.
No Minimum Paid-Up Share Capital:
Companies Act, 2013 has not prescribed any amount as minimum paid-up capital for OPCs.
Nomination:
While registering the company as OPC, the sole member of the company has to mention a nominee while registering the company. This nomination is required in the case of the death/incapacity of the original shareholder. The requirements of being a resident Indian and citizen of India also apply to the nominee. If the person so nominated is already a member of another One Person Company, at the same time, by virtue of rules has to decide within 6 months which one person company he has to continue. On becoming member, such nominee shall nominate any other person as his nominee. In case of the death of the owner of OPC, the nominee has the right to choose or reject to become the sole owner of the company. No minor shall become a member or nominee of the OPC or can hold share with beneficial interests. This requirement differs OPC from other types of businesses.
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No perpetual succession:
In case of the death of the owner of OPC, the nominee has the right to choose or reject to become the sole owner of the company. In the case nominee rejecting to become sole member, the existence of OPC comes to an end. This does not happen in other companies as they follow the concept of perpetual succession.
Restriction on Business:
OPC cannot carry out non-banking financial investment activities, including investment in securities of any corporate.
Subsequent Conversion:
OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except when paid-up capital is increased beyond 50 lakh rupees or its average annual turnover during the relevant period exceeds 2 crore rupees. After reaching the threshold, the OPC has to compulsorily file required forms with the ROC for conversion in to a Private or Public Company. This has to be done within 6 months from the actual date of crossing the threshold limit stated above.
Special Privileges
Many privileges and exemptions are enjoyed by the OPCs under the Companies Act that other types of companies are not entitled to.
Advantages of OPC:
- According to the Companies Act, the liability of the single shareholder in the company is limited to the unpaid subscription money in his/her name.
- OPC is a separate legal entity registered under the Companies Act and enjoys the same privileges that come with a firm being listed as a private limited company.
- Incorporation as OPC and registration gives more credibility to the business
- Easy to get loans or funding for the business as lenders trust the registered business
- The Companies Act also provides for a person, nominated by the stakeholder, to take over the reins of the company in the event of the death or inability of the said stakeholder. Moreover, this allows the OPC to have a continuous life beyond that of the founding director.
- OPC provides an opportunity to those who look forward to starting their own start-ups with a structure of organized business with continuous access to financial, legal, market resources.
- The Companies Act of 2013 exempts the OPC from certain compliance requirements. The cash flow statement does not have to be prepared by the OPC. The company secretary is not required to sign the books of accounts or annual returns, which is only need to be signed by the director.
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Disadvantages of OPC:
- OPC takes more money to set up and run compared to Sole Proprietorship
- All decisions must be made and approved by the lone member. The barrier between ownership and control is becoming increasingly blurred, perhaps leading to unethical commercial activities.
- OPC (One Person Company) is well suited to the structure of a small firm.
- Must have a nominee to incorporate an OPC
- A person cannot have more than one OPC at a time
- The OPC is prohibited from engaging in non-banking financial investment operations, such as investing in corporate securities. It cannot be changed to a charity purpose company under Section 8 of the Companies Act, 2013.
Process of Incorporation of One Person Company (OPC)
- Step 1: Obtain Digital Signature Certificate [DSC] for the proposed Director(s)
- Step 2: Obtain Director Identification Number [DIN] for the proposed director(s)
- Step 3: Select suitable Company Name, and make an application to the Ministry of Corporate Affairs for availability of name
- Step 4: Draft Memorandum of Association and Articles of Association [MOA & AOA]
- Step 5: Sign and file various documents including MOA & AOA with the Registrar of Companies electronically
- Step 6: Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty
- Step 7: Scrutiny of documents at Registrar of Companies [ROC]
- Step 8: Receipt of Certificate of Registration/Incorporation from ROC
Distinguishing Between OPC and Sole Proprietorship:
| One Person Company | Sole Proprietorship |
| Registration is compulsory. | Registration not compulsory. |
| Liability is limited to the extent of paid up capital. | Liability is unlimited. |
| It needs to have its book audited, annual filings are mandatory. | Annual return by owner sufficient. |
| It has separate legal entity | It doesn’t have separate legal entity. |
| It has perpetual succession due to provision of nomination. | At the death of the owner sole proprietorship comes to an end. |
| It is taxed as private limited company. | T is taxed as an individual. |
| Its formation requires to complete many legal formalities. | Its formation does not require any legal formalities. |
| Property of company is not that of the owner. | Property of sole proprietorship is considered as property of the owner. |
| Its conversion into a private company is easy. | Its conversion into private company is a tedious process. |
| Brand is comparatively more visible. | Brand is less visible. |
| Comparatively more funding is available from financial institutions | Less funding from financial institutions |
Conclusion:
An OPC company as a company that has only one person as a member. Only natural persons who are Indian citizens and residents are eligible to form an OPC in India. The OPC is best for people who want to start a business with a corporate structure but still want to retain effective control over all the business operations. The concept of OPC is still in its nascent stages in India and would require some more time to mature and to be fully accepted by the business world. With passage of time, the OPC mode of business organization is all set to become the most preferred form of business organization specially for small entrepreneurs.
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