The concept of One Person Company in India was introduced through the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a One Person Company (OPC) is that there can be only one member in an OPC, while a minimum of two members are required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership (LLP). Similar to a Private Limited Company, a One Person Company is a separate legal entity from its promoter, offering limited liability protection to its sole shareholder, while having continuity of business and being easy to incorporate.
Though a One Person Company allows a lone Entrepreneur to operate a corporate entity with limited liability protection, an OPC does have a few limitations. For instance, every One Person Company (OPC) must nominate a nominee Director in the MOA and AOA of the Company – who will become the owner of the OPC in case the sole Director is disabled. Also, a One Person Company must be converted into a Private Limited Company if it crosses an annual turnover of Rs.2 crores and must file audited financial statements with the Ministry of Corporate Affairs at the end of each Financial Year like all types of Companies. Therefore, it is essential for the Entrepreneur to carefully consider the features of a One Person Company before incorporation.
Benefits of the ONE Person Company
A One Person Company (OPC) Private Limited has many advantages as compared to Companies and Proprietorship firm.
A. COMPLIANCE BURDEN:
The One person Company includes in the definition of “Private Limited Company” given under section 2(68) of the Companies Act, 2013. Thus, an OPC will be required to comply with provisions applicable to private companies. However, OPCs have been provided with a number of exemptions and therefore have lesser compliance related burden.
B. ORGANIZED SECTOR OF PROPRIETORSHIP COMPANY:
OPC will bring the unorganized sector of proprietorship into the organized version of a private limited company. Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The organized version of OPC will open the avenues for more favorable banking facilities. Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited.
C. MINIMUM REQUIREMENTS:
√ Minimum 1 Shareholder
√ Minimum 1 Director
The director and shareholder can be same person
√ Minimum 1 Nominee
√ No Need of any Minimum Share Capital
√ Letters ‘OPC’ to be suffixed with the name of OPCs to distinguish it from other companies
LIMITED LIABILITY PROTECTION TO DIRECTORS AND SHAREHOLDER:
The most significant reason for shareholders to incorporate the ‘single-person company’ is certainly the desire for the limited liability.
All unfortunate events in business are not always under an entrepreneur’s control; hence it is important to secure the personal assets of the owner, if the business lands up in crises.
While doing business as a proprietorship firm, the personal assets of the proprietor can be at risk in the event of failure, but this is not the case for a One Person Private Limited Company, as the shareholder liability is limited to his shareholding. This means any loss or debts which is purely of business nature will not impact, personal savings or wealth of an entrepreneur.
If the business is unable to pay its liabilities, the individual has to pay such liabilities off in the case of sole proprietorship; and the individual is not responsible for such liabilities in the case of a one person company.
An OPC gives the advantage of limited liability to entrepreneurs whereby the liability of the member will be limited to the unpaid subscription money. This benefit is not available in case of a sole proprietorship.
“Thus OPC allows an individual to take risks without risking his/her personal assets”.
LEGAL STATUS AND SOCIAL RECOGNITION FOR YOUR BUSINESS
One Person Company is a Private Limited Structure; this is the most popular business structure in the world. Gives suppliers and customers a sense of confidence in business. Large organizations prefer to deal with private limited companies instead of proprietorship firms. Pvt. Ltd. business structure enjoys corporate status in society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, like directorship. These designations cannot be used by proprietorship firms.
ADEQUATE SAFEGUARDS:
In case of death/disability of the sole person should be provided through appointment of another individual as nominee director. On the demise of the original director, the nominee director will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.
EASY TO GET LOAN FROM BANKS
Banking and financial institutions prefer to lend money to the company rather than proprietary firms. In most of the situations Banks insist the entrepreneurs to convert their firm into a Private Limited company before sanctioning funds. So it is better to register your startup as a One Person private limited rather than proprietary firm.
COMPLETE CONTROL OF THE COMPANY WITH THE SINGLE OWNER
This leads to fast decision making and execution. Yet he/she can appoint as many as 15 directors in the OPC for administrative functions, without giving any share to them.
I. EASY TO MANAGE:
♦ No requirement to hold annual or Extra Ordinary General Meetings: Only the resolution shall be communicated by the member of the company and entered in the minutes book and signed and dated by the member and such date shall be deemed to be the date of meeting.
♦ Board Meeting: A One Person Company may conduct at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings shall not be less than ninety days.
♦ Quorum: The provisions of Section 174 (Quorum for meetings of Board) will not apply to One Person Company in which there is only one director on its Board of Directors.
♦ Minutes: Where the company is having only one director, all the businesses to be at the transacted meeting of the Board shall be entered into minutes book maintained under section 118. No need to hold Board Meeting in this case.
OPC Registration Process
- Only a natural person who is Indian Citizen and resident in India can incorporate OPC.
- Resident in India means a person who had resided in India for a period not lesser than 182 days in the prior calendar year.
- Legal entities like Company or LLP cannot incorporate a OPC.
- There is no minimum authorized capital limit.
- A nominee must be appointed by the promoter during incorporation.
- Businesses involved in financial activities cannot be incorporated as a OPC.
- OPC must be converted to a private limited company when paid-up share capital exceeds Rs.50 lakhs or turnover crosses Rs.2 crores.
Nominee in One Person Company
The rules for incorporation of one person company requires that the sole member of a One Person Company should include the name of a nominee in the Companies MOA, who will undertake the entity after the expiry or incapacity of the former. Moreover, the document must contain the written consent of the nominee, which must also be filed with the Registrar during incorporation along with the MOA and AOA.
Withdrawal of Consent
The nominee is entitled to withdraw his/her consent, in which case the sole member is required to nominate another member as a legal heir within 15 days of the notice of withdrawal. The nomination of new personnel must be intimated to the Company through a written consent in Form INC-3. The Company, in turn, is required to file the notice of withdrawal of consent along with the intimation of the new nominee with the Registrar in Form INC 4.
Change of Nominee
The sole member of a ‘One Person Company’ is empowered to change the nominee of the Company for any reason whatsoever, by providing notice in writing to the Company. Again, the new nominee must consent to the nomination in Form INC 3, and the Company must file the notice of change and consent of the nominee with the Registrar along with the applicable fee, within 30 days of receiving the intimation of change.
Nominee Appointment
If a nominee becomes in-charge of the one person company due to the cessation of the original member’s term owing to the death or incapacity of the latter, the new member must appoint a nominee as a replacement.