What is One Person Company ?

Under the recommendation of the expert committee of Dr. JJ Irani in 2005, a new concept of One Person Company (OPC) was introduced into the Companies Act, 2013. The concept of OPC allows a great deal of opportunities for people looking forward to starting their own ventures with a structure of organised business. In this article I have explained the what is one personal company, its registration, benefits and how it is different from privae company. 

Meaning of One Person Company

Section 2(62) of Companies Act defines an OPC as a company that has only one person as its members. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. Therefore, it can be said that an OPC is a company that has only one shareholder as its member.

A point of reference here is that, Section 3 classifies OPC as a Private Company for all the legal purposes with only one member. Unless otherwise expressly excluded, all the provisions related to private company are applicable to OPC.

Also, an important condition to the formation of OPC is that only a “Naturally-born” Indian, who is a resident of India is eligible to incorporate an OPC. Which means, only those INDIANS who are naturally born in India and are the ordinary residents on India can obtain the advantage of One Person Company. Moreover, the section also puts a limitation to the number of OPCs formed by a person, which cannot exceed 5 OPCs.

One Person Company Registration

An OPC can be formed in two categories;

1. Company limited by guarantee

An OPC limited by guarantee without share capital does not usually have shareholders, but instead has members who act as guarantors. These guarantors undertake to contribute a nominal amount (typically very small) in the event of the winding up of the company.

2. Company limited by shares

“Limited by shares” means that the liability of the shareholders to creditors of the company is limited to the capital originally invested, i.e. the nominal value of the shares and any premium paid in return for the issue of the shares by the company. A shareholder’s personal assets are thus protected in the event of the company’s insolvency, but any money invested in the company may be lost.

For a company limited by shares, there are a few conditions that need to be complied before it can gain incorporation;

1. Minimum paid up capital – 1 lakh
2. Restriction on transfer of shares.
3. There is no public issue of securities.

However, there is no such conditions mentioned as for the companies limited by guarantee.

The OPC needs an identity through a specific name under which the affairs of the organisation is to be carried out and such name needs to have the words ‘One Person Company’ mentioned below it, wherever the name is affixed, used or engraved.

Some of the examples of “One person companies” located in India and involved in agriculture, hunting and forestry;

The member of an OPC has to nominate a nominee with the nominees written consent, and file it with the Registrar of Companies (RoC). This nominee in the event of death or in event of any other incapacity, shall become a member of an OPC. The member of an OPC at any time can change the name of the nominee providing a notice to the RoC in such manner as prescribed. On account of Death of a member, the nominee is automatically entitled for all shares and liabilities of OPC.

OPC has to be incorporated through Ministry of Corporate Affairs. Not even an audited annual return needs to be submitted to MCA. The company can nominate any other person as director without executive powers. The service charge for this service ranges from Rs. 5000/- to Rs 12000/-.

Find here FAQ on OPC and regisration process

Advantages of One Person Company

An OPC has certain benefits and exemptions which are not available to private companies. these make the OPC unique from the similarities it shares from the Private companies.

1. Since the OPC can be formed by the existence of one member, it eases the complication of the procedure for fulfilling the condition of minimum number of members required to constitute a company.
2. OPCs do not require any minimum amount of paid up share capita for incorporation.
3. OPCs do not require to hold Annual General Meetings[AGMs].
4. Provisions relating to independent directors do not apply to OPCs.
5. There is no restriction in payment of remuneration to directors as compared to other companies.
6. The articles of OPCs can provide for additional vacations of a director’s office.
7. Company secretary is not required for signing of annual returns, the directors can sign it themselves.
8. There is no requirement of including Cash Flow Statements in their financial statements.

Limitations of One Person Company

1. The OPC to be incorporated needs to have a nominee, which complicates the process as the nominee need to give his consent and verify his details and also he can withdraw his consent to the nomination which would create more hassle, as the law requires the founder to nominate another person within 15 days from such withdrawal. And a long procedure of intimation, alteration of memorandum and communication with registrar needs to be done in such a case.
2. As per rule 2.1(1) of the Draft Rules under Companies Act, 2013 only a natural person who is an ordinary resident of India can incorporate an OPC. This in turn discourages foreign direct investment by disallowing foreign companies and multinational companies to have subsidiaries in the country. So for the purpose of foreign investments the OPC needs to be converted in Private Limited Company.
3. An OPC cannot be incorporated under Section 8 (Formation of companies with charitable objects etc) of the Companies Act, 2013. Neither can it carry out Non-Banking Financial Investment activities. Which means it cannot also invest in securities of any body-corporate.

It can only convert into either public or private company, upon satisfaction of conditions mentioned below;

1. OPC must be in existence for at least 2 years; or
2. The paid-up share capital must have increased beyond Rs. 50 lakhs; or
3. The average turnover must have exceeded Rs. 2 crores.
4. The OPC cannot issue ESOPs to its employees, which leaves it at a disadvantage for encouraging the employees.

Difference between One person company and private/public company

Hope I have given you the answer of what is one person company.  From the above table it can be said that OPC is beneficial to small business holders with less investments.

Therefore, the beneficial future for the laws regarding OPCs in India would be for the lawmakers to observe the policies and procedures of the countries like United States, U.K, Australia etc. Where the OPCs are functioning flexibly. In order to make the initiative of OPCs a success in our country more attention towards its diversity needs to be given.

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CA Harish Negi

Hey readers, welcome to my blog investsaver.com. I am Chartered Accountant by Profession and I love to write on tax & money matters. You may ask your queries through comments related to the topic, I will be happy to answer them.

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