What is One Person Company? A Comprehensive Guide

The Companies Act of 2013 revolutionized the corporate laws in India by with the introduction of new concepts. The introduction of the concept of what is One Person Company (OPC) began a whole new way of starting businesses which granted flexibility that a company could offer. It also has protected limited liability which was lacking in partnerships and sole proprietorships.

In countries like the USA, China, Singapore, UK and Australia, the ability of individuals to form a company was already identified even before the new Companies Act 2013. However, the Companies Act, 2013 completely changed the business rules in India and introduced a number of new concepts that were not previously available.

What is One Person Company?

Under section 2(62) of the Companies Act of 2013 defines One Person Company as a company having only one person as the member of the company. Members of a company are the company’s shareholders or subscribers to its Memorandum of Association, hence OPC is a company with only one shareholder as its member, functionally.

OPCs are businesses that have just one founder or promoter. Since OPCs offer many advantages, entrepreneurs at an early stage of business give more preference to the creation of OPCs rather than sole proprietorships. Any natural person who isn’t a minor and is an Indian citizen and whether or not an Indian citizen, i.e. the NRI can enter One Person Company and appoint an OPC nominee, the non-resident timeline of Indians has been reduced to 120 days.

An individual company is defined as a company constituted with one person as a member, in contrast to the standard practice of having at least two members. The one man economic organization paves the way for small businesses, and service providers to enter the business by increasing their opportunities with corporate ownership.

What is the difference between OPC and Sole Proprietorships?

An OPC and sole proprietorship may look alike since both the forms of businesses have a single person involved who owns the business, however, in reality, they are quite different from each other. The nature of the liabilities carried by both of them is the major difference between them.

OPC is a separate legal entity on its own which is distinctive from its promoter and has its own liabilities and assets. The promoter isn’t held personally liable to pay off the debts of the company.

In the sole proprietorship, in the case of non-fulfilment of the liabilities of the business, the promoter’s assets are attached and sold by the law.

What are the features of an OPC?

The One Person Company has the following features:

• Private Company
  • The Companies Act, 2013 Section 3(1) (c) states that a single person can form a company for any purpose recognized by the law. OPCs are further categorized as private companies.
• Single Member
  • OPCs can have only one shareholder or member unlike other private companies.
• Nominee
  • A nominee is nominated by the sole member of the company during the registration of the company. This is a unique feature of OPCs and this distinguishes it from all other types of companies.

• No Perpetual Succession
  • The nominee can either reject or choose to become the sole member on the death of the only member of the company. The concept of perpetual succession is followed in other kinds of companies.
• Minimum One Director
  • A minimum of one person needs to be the director of OPCs, which is the member in this case. The maximum number goes to 15 directors.

• No Minimum Paidup Share Capital
  • The Companies Act, 2013 prescribes no minimum paid-up share capital for the OPCs.
• Special Privileges
  • Under the Companies Act OPCs enjoy many privileges and exemptions that other types of companies are not entitled to.
• Formation of One Person Companies
  • By fulfilling all the prerequisites prescribed by the Companies Act, 2013 including subscribing his name to the Memorandum of Association, a single person can create an OPC.
  • The details of a nominee who would become the sole member of the company in case of death of the original member or he becomes incapable of entering any contract need to be declared in the Memorandum of Association (MOA).

In addition to the application for registration, the Registrar of Companies (ROC) needs to be submitted with the MOA and the nominee’s consent. By submitting the required application to the Registrar, that nominee can withdraw his name at any given point of time. Later, the member can also cancel his nomination.

Membership in One Person Companies

Only natural individuals who are the citizens of India and residents of the country are eligible to create an OPC in India. The nominees also have the same directive. At any given point of time, such a person is not allowed to be a member or nominee of more than one OPC.  

Only a natural person can become a member of an OPC, however, this rule doesn’t apply in case of companies. Companies can act as members and own shares of the companies. The law prohibits minors from becoming OPC members or nominees.  

Can an OPC be converted into other companies?

Section 8 prohibits the conversion of OPC into companies that have charitable objectives. OPC can’t convert into other types of companies voluntarily until the expiry of two years from the date of their incorporation.

What are the privileges of One Person Companies?

The following privileges and exemptions are applicable to OPC under the Companies Act:

• Annual general meetings need not be conducted by OPCs.
• Cash flow statements need not be a part of the financial statements.
• A company secretary is not mandatorily required to sign the annual returns, Directors can do too.
• Independent directors’ provisions are not applied to OPCs.
• The remuneration of Directors is higher compared to other companies.

Conclusion

In conclusion, the introduction of what is One Person Company through the Companies Act of 2013, marked a significant shift in India’s corporate landscape, offering entrepreneurs a flexible and protected structure for solo ventures. The distinct legal entity status, the unique feature of a nominee, and various privileges granted to OPCs differentiate them from sole proprietorships.

This innovative concept has not only simplified the process of starting and operating businesses but has also empowered individual entrepreneurs with limited liability and increased opportunities in the Indian business ecosystem.

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