The Companies Act 2013 introduced the concept of an entity called a One Person Company (OPC). This blog guides you all about One Person Company. Earlier, a company involved at least 2 people to begin with. In such a company, a single person is the sole shareholder of the company who may as well be the Sole Director.
The purpose is to enable small businessmen to function with a corporate identity, a separate legal entity having limited liability and Perpetual Existence, while remaining independent. The member must appoint a nominee, and take prior written consent from him, who shall become a member of the company in case of death/ inability to contract of the owner.
An OPC must be converted into a Private Limited/ Public company when the annual turnover in the last three financial years exceeds INR 2 crores or if the paid-up capital exceeds INR 50 lakhs. Also, Compliances in case of an OPC are a lot less as compared to those in case of a Private Limited Company, in effect reducing costs.
On this page
All about One Person Company – Advantages
- Small businessmen can be independent and get corporate status
- Freedom from many compliances
- Separate legal entity
- Social status
- Limited liability
- Perpetual succession
- No Minimum paid-up capital required
What are the limitations of One Person Company?
- Cost of Incorporation is same as a Pvt. Ltd. company, though future compliance cost may be lesser.
- Cannot convert to Private/Public Company 2 years before incorporation (unless it crosses the limits) turnover limit of INR 2 crore may be too small for certain businesses.
- OPC cannot invest in another corporate body.
- Income Tax Base rate of 30%.
Who can form a One Person Company?
Only a natural person, who is a resident and citizen of India can form or be a nominee in an OPC.
A person cannot incorporate or become a nominee in multiple OPCs at a time.
[Rule 3 of Companies (Incorporation) Rules, 2014] Memorandum and Articles– Format prescribed in the act (Schedule I, Table A, & Table F).
The procedure for Incorporation is as under;
- Name Reservation:
Form INC-1 needs to be filed for name availability. - Incorporation:
Once the name is approved for incorporation of the OPC Form INC-2 it will be filed for within 60 days of filing form INC-1. If the promoter is not the sole director of the OPC, form DIR-12 must be filed linked with form INC-2.
In case the address of correspondence and registered office address is not same, form INC-22 must be filed within 30 days once form INC-2 is registered.
Who can be the nominee of One Person Company?
- A ‘Nominee’ must be appointed by the member of an OPC, after obtaining prior written consent from him.
- Such nominee becomes the member of the OPC on death of member, and is entitled to similar dividends, rights and liabilities as the deceased member.
- After becoming a member he should appoint a new nominee within 15 days.
Director(s) [Section 152]
- Until other directors are duly appointed, the Member shall be deemed to be the director.
- Before becoming the Director in a company, the interested person should apply and get a Director Identification Number (DIN).
- At general meeting, the Director must be appointed.
Board Meeting and Resolutions [Sec 122(4)]
If OPC has only 1 director;
- For passing any Board Resolution, it shall be sufficient if the resolution is entered in the minutes-book required to be maintained under section 118, and is signed and dated by the director. (Under this act, the date shall be the date of the meeting of the Board of Directors for all the purposes)
- Minimum no. of board meetings to be compulsorily held in a year are “0”, If OPC has more than 1 Director, it has to hold board meetings and pass resolutions as required. Minimum no. of board meetings to be compulsorily held in a year are “2”, one in each half of calendar year with at least 90 days gap between the 2 meetings in the year.
General Meetings and Resolutions
- OPC need not hold Annual General Meeting (AGM) [Section 96(1)]
- An OPC is not bound by section 98 and section 100 to 111 [Section 122(1)]
- Shareholder’s resolution can be passed (whether ordinary or special), if – [Section 122(3)]
The resolution is communicated by the member to the company. It is entered in the minutes book required to be maintained under section 118 It is signed and dated by the member (such date shall be deemed to be the date of the meeting for all the purposes under the Act).
Annual Financial Statements, Annual Filings and Audit
- Cash Flow Statement is not mandatory. [Section 2(40)]
- Before submission to auditor, the financial statements can be signed by only one director. [Section 134(1)]
- Only 1 thing – Explanations or comments by the board on every qualification, reservation or adverse remark or disclaimer by the auditor needs to be present in Board Report to be annexed to financial statements. [Section 134(4)]
- A copy of the financial statements duly adopted by its member must be filed within 180 days from the closure of the financial year (along with Notes, Board Report, and Auditor’s Report). [3rd Provison to Section 137(1)].
- In Annual Return, signature of a Company Secretary is not mandatory. [Provison to Sec. 92(1)] – Rotation of auditor not applicable [Section 139].
Conversion [Companies (Incorporation) Rules, 2014]
- Conversion into a Section 8 company is not allowed for OPC.
- Voluntary conversion into a Pvt/ Public company isn’t allowed unless 2 years has expired since date of incorporation.
- Must be converted into a Private/Public company if – Paid-up capital of the company exceeds INR 50 lacs, or the average annual turnover of past 3 FYs exceeds INR 2 Crores.
Conclusion
In conclusion, all about One Person Company under the Companies Act 2013 has provided small businessmen in India with the opportunity to operate with a corporate identity, limited liability, and perpetual existence while remaining independent. The advantages of an OPC include reduced compliance costs, separate legal entity status, and limited liability for the sole shareholder.
However, certain limitations such as the turnover threshold and restrictions on investing in other corporate bodies should be considered, making it imperative for businesses to carefully evaluate the suitability of OPC structure for their specific needs.
FAQs
1. Difference in minimum shareholders for incorporation in Private Limited and OPC?
A Private Limited Company’s incorporation requires a minimum of 2 shareholders whereas In OPC, only one person and one shareholder are required to incorporate and run the company.
2. Is it easy to raise funds for a Private Limited Company?
Yes, The Private Limited Company can get funding from various venture capitals, angel investments, etc. In OPC there is only one member who bears the entire financial burden on his/her shoulder.
3. What is the minimum number of Directors for a Private Limited Company and an OPC?
A Private Limited Company has a minimum of 2 Directors and a maximum of seven directors at the time of incorporation. An OPC has only one member in the company.
4. What is the number of AGM and Board meetings to be conducted for a Private Limited Company and an OPC?
For a Private Limited Company, it is mandatory to convene 4 Board meetings and 1 AGM in a financial year.
For an OPC there is no need to hold any AGM but it should hold a minimum of two Board meetings during a calendar year and one meeting in six months with a gap of at least three months between them.
5. Out of Private Limited Company and OPC which is suitable for Foreign Direct Investment?
OPC is not suitable for FDI whereas the Private Limited Company can have 100% FDI.
6. Can an OPC involve in investment in securities, and non-banking financial activities?
OPC cannot involve in investment in securities, and non-banking financial activities whereas Private Limited Company can do so after taking appropriate approval.
7. What is the difference in Control and Ownership of the Private Limited Company and OPC?
In the private limited company, the ownership is divided between two members and the voting power is distributed based on the ratio of shares held by each member.
In a One Person Company, the sole member who is the Director has the complete ownership of the company and is not shared with any other person.
8. What is the difference in establishment and compliance costs between a Private Limited Company and OPC?
The cost involved in the formation of the Private Company and the One Person Company is the same, but the compliance cost of an OPC is less than that of the Private Limited Company.
