Concept of One Person Company under Companies Act 2013

Earlier, it was mandatory to have a minimum of two person to form a company, after the introduction of the Companies Act of 2013 included a concept of One Person Company in Section 2(62). Section 2(62), provides that One Person company can be formed by one member not more than one member.

There are several advantages of one person company such as easy funding, limited liability, single owner etc.  This blog provides a deep and clear view of the concept of one person company.

What is the concept of One Person Company?

According to Section 2(62) of the Companies Act, a one person company is defined as a company with only one individual serving as its member. In essence, the members of a company are synonymous with the subscribers to its Memorandum of Association (MOA) or its shareholders. Therefore, an OPC is essentially a company that exclusively has a single shareholder as its member.

Who is eligible to register One Person Company?

• A natural citizen who is a resident of India can form OPC.
• There must be only One Person in OPC.
• The name which has been created by a particular OPC should be unique. 
• A person cannot have and operate more than one OPC. 
• There must be one director to run the business of OPC.  

What are the registration process in concept of One Person Company?

• To start the OPC, one should apply for the Digital Signature Certificate (DSC) of the proposed director.
• The member of the OPC must apply for the Director Identification Number (DIN) of the proposed director.
• It should be opted for and kept ready for name approval. The Members of OPC must apply for the name reservation of the company in Ministry of Corporate Affairs (MCA). They should apply with one name on the SPICe+ (INC-32) application form.
• After getting approval, the member of OPC has to accumulate or submit all the essential documents and should attach all these documents to the SPICe Form, SPICe-AoA, SPICe-MoA and upload it to the MCA site for approval.
• After completing the verification of the documents, which are all submitted, the Registers of Company (ROC) will issue an Incorporation Certificate which will enable the member to start and run the company.

What are the advantages of one person company?

There are several advanatges for a one person company. Let us discuss some of the major advantages of One Person Company.

• Separate Legal entity
  • OPC is a separate legal entity and has the capacity to function the same as how an entrepreneur works.
  • If spoken legally, a company is a person, which has a common seal, and perpetual succession. It has the authority to exercise all the functions of an incorporated person.
• Easy Funding
  • OPC is a private company, it can raise funds through many ways like financial institutions, venture capital, angel investors, etc.
  • When it is seen that OPC is able to raise funds then it is gradually building itself into a Private Company.
• Limited Liability
  • It has a lot of opportunities where it can grab to perform with limited liability.
  • It means that an individual can take up risk without suffering or affecting the loss of his personal assets.
• Minimum Requirements
  • The basic requirements an OPC have are:
    • One Shareholder
    • One Director
    • One Nominee
  • There must be a name formed by the OPC to distinguish it from other companies. It should be unique and not similar to any existing company’s name or trademark.
• Benefits of being a Small Scale Industries
  • An OPC receives various benefits which are provided to Small Scale Industries like easy funding from the bank without depositing any security, low-interest rates on the loan, etc. All these benefits can help and be a great advantage to any business.
• Single Owner
  • In OPC, the single owner in OPC is responsible for quick decision-making, controlling and managing the business.
  • The owner of the OPC has the complete power to run the business.
• Credit Rating
  • The OPC should definitely have a good credit rating. If the OPC has a good credit rating, then it has a good impression and can easily get a loan. If not, it is quite hard to operate the business.
• Benefits under Income Tax Law
  • Unlike proprietorship, any remuneration that is paid to the director will be considered as a deduction as per Income Tax law and presumptive taxation is available under the Income Tax Law.
• Receive interest on late Payment
  • Under the Enterprises Development Act, of 2006, if the buyer or receiver receives any late payment even after a specified period, then he can receive interest which is three times the bank rate.
• Increased Trust and Prestige
  • The OPC which has good business with good profit also has a good reputation among the people. No doubt, it increases its prestige and trust over the people.
  • Not only OPC, but any business entity which runs in the form of a company enjoys increased trust and prestige.

What are the disadvantages of one person company?

• Management and Ownership
  • There is no difference between ownership and management in OPC because only one member is the company’s director. This Perhaps can lead to unethical commercial activities.
• Only suitable for small businesses
  • OPC will be well-suitable for a smaller firm. To get funds for running the business, the OPC cannot recruit more members or shareholders.
• Business operations are restricted
  • The OPC is restricted to Non-Banking Financial Investment activities which include the investment in securities of any other body corporate and so on.
• OPC is included in name
  • After the name of the OPC, it should include that it is an OPC in a small bracket. This can create a bad impression on the people as they think that it is operated by a single person and might not be that effective.
• One Person Management
  • When it comes to the shareholder, the OPC can have only one shareholder. Sometimes there are chances that the decisions made may be vague as it is made by only One Person without any support.
• Not suitable for high turnover
  • The OPCs are not suitable for high turnover, it is said so because when there is high turnover in a business of an OPC, it is automatically converted into a Private Limited Company.

What will be the cost of registering OPC in India?

In the concept of One Person Company, the nominal share capital determines the government fees which is required for the registration of OPC in India. For instance, if the Share Capital of OPC is INR 10,00,000, then the government fees for registering an OPC will be INR 2,000.

Then comes the nominal share capital, when it is between INR 10 lakhs to INR 50 lakhs then INR 2,000 plus INR 200 will be added to each INR 10,000 share. However, there are also some additional fees that would apply for the OPC incorporation in India like stamp duties, form filing fees, DIN form fees etc.

Conclusion

In conclusion, the concept of One Person Company introduced by the Companies Act of 2013 has provided a unique opportunity for individual entrepreneurs in India to enjoy the benefits of limited liability, easy funding, and the prestige of operating as a separate legal entity.

While the advantages include streamlined decision-making, credit rating benefits, and increased trust, there are also limitations such as restrictions on business activities, the mandatory inclusion of OPC in the company name, and the potential challenge of managing both ownership and management as a single individual.

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