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 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 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?

Concept of One Person Company Registering Process
  • To start the OPC, one should apply for the DSC (Digital Signature Certificate) of the proposed director.
  • The Member of the OPC must apply for the DIN (Director Identification Number) 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 MCA (Ministry of Corporate Affairs). 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 will issue an Incorporation Certificate which will enable the member to start and run the company.

What are the 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.
OPC Registration Service in Bangalore

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 10,00,000 to INR 50,00,000 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 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.

FAQs
1. What is the concept of One Person Company?

One Person Company is a business structure with reduced compliance requirements compared to a private company. This allows an individual, whether a resident or Non-Resident Indian, to establish a business with company features while enjoying the advantages of a sole proprietorship.

2. Who is eligible to form an OPC?

An individual who is an Indian citizen and resident can form an OPC. The person must also meet certain criteria, such as not being part of more than one OPC and not being a minor.

3. Can an OPC have more than one director or shareholder?

No, an OPC can have only one natural person as both the director and shareholder. There can be up to 15 directors in the case of a Private Limited company, but in an OPC, it’s a One Person show.

4. Whether it is mandatory for an OPC to have a nominee?

Yes, Every OPC is required to have a nominee who will take over the company’s management in case the sole director/shareholder becomes incapacitated or dies.

5. How can an OPC get converted into a Private Limited Company?

If the annual turnover of an OPC exceeds the prescribed limit or its paid-up capital surpasses INR 50 lakhs, then it can be converted into a Private Limited Company. The process involves altering the memorandum and articles of association, increasing the number of directors and shareholders, and filing necessary forms with the Registrar of Companies. This conversion is generally carried out within six months of crossing the threshold limit.

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