One Person Company (OPC) in India

One person companies are in existence in certain countries. In India this concept has been mooted by the Ministry of Corporate Affairs by allowing One Person Companies in India in line with UK, China, USA, Australia, Singapore, Qatar, Pakistan and several other countries. It is a right thinking in right direction by the Ministry of Corporate Affairs. One Person Companies have been in existence in UK for several years now. China allowed formation of OPCs as recent as in 2005. A few other countries have also given the legal status for OPCs. Historically, United Kingdom is the first one, which paved the way to the one man company through a precedent set in its famous case Saloman v. Saloman & Co. (1897) AC 22.

United States of America:  In USA several States permit the formation of a single member Limited
Liability Company (LLC).
Singapore: Singapore permits One Person Company under Companies Amendment Act of 2004.

Advertisements

China: China introduced One Person Company in 2005.

UAE: United Arab Emirates recognises the concept of One Person Company.

Turkey: According to Turkish Commercial Code since 2012 a joint stock company or limited liability company may be established with one or more shareholders. The code also sets forth certain obligations and conditions for such companies. In addition, limited liability companies and joint stock
companies can have a board of directors that consists of only one board member.

Pakistan: Single Member Companies Rules, 2003 of Pakistan provide for incorporation of single member company.

One Person Company (OPC) is a relatively new form of business entity introduced in India in 2013 under the Companies Act, 2013. It is an excellent option for small business owners and entrepreneurs who want to start a company with a single member, where the member can act as both the director and shareholder. The concept of OPC was introduced to encourage self-employment and boost entrepreneurship in the country.

One Person Company [Section 2(62)]: One Person Company means a company which has only one person as a member. One Person Company has to be formed as a private company. [Section 3(1)(c)]

Type of OPC [Section 3(2)]: An OPC may be formed either as:

• Company limited by shares or
• Company limited by guarantee or
• Unlimited liability company.

Thus, it is incorrect to say that one person company shall be formed only as a company limited by shares. An OPC is a type of company that can be formed with just one person as its member. This means that the company has only one shareholder who is also the sole director of the company.

Features of One Person Company (OPC):

• Desire for personal freedom that allows the Professional skilled person to adopt the business of his choice.
• Personality driven passion and implementation of a business plan.
• The desire of the entrepreneurial person to take extra risk and willingness to take additional responsibility.
• Personal commitment to the business which is a sole idea of the person and close to his heart.
• It is run by individuals yet OPCs are a separate legal entity similar to that of any registered corporate.
• A One Person Company is incorporated as a private limited company.
• It must have only one member at any point of time and may have only one director.
• The member and nominee should be natural persons, Indian Citizens and resident in India. The term “resident in India” means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.
• One person cannot incorporate more than one OPC or become nominee in more than one OPC.
• If a member of OPC becomes a member in another OPC by virtue of his being nominee in that OPC then within 180 days he shall have to meet the eligibility criteria of being Member in one OPC.
• OPC to lose its status if paid up capital exceeds Rs. 50 lakhs or average annual turnover is more than 2 crores in three immediate preceding consecutive years.
• No minor shall become member or nominee of the One Person Company or hold share with beneficial interest.
• Such Company cannot be incorporated or converted into a company under section 8 of the Companies Act, 2013.
• Such Company cannot carry out Non Banking Financial Investment activities including investment in securities of any body corporate.
• No such company can convert voluntarily into any kind of company unless 2 years have expired from the date of incorporation, except in cases where capital or turnover threshold limits are reached.
• An existing private company other than a company registered under section 8 of the Act which has paid up share capital of Rs. 50 Lakhs or less or average annual turnover during the relevant period is Rs. 2 Crores or less may convert itself into one person company by passing a special resolution in the general meeting.

Some of the privileges and benefits identified with OPCs are:
• OPCs would provide the start-up entrepreneurs with new business idea.
• OPC provides an outlet for the entrepreneurial impulses among the professionals.
• The advantages of limited liability. The most significant reason for shareholders to incorporate the ‘single-person company’ is certainly the desire for the limited liability.
• OPCs are not proprietorship concerns; hence, they give a dual entity to the company as well as the individual, guarding the individual against any pitfalls of liabilities. This is the fundamental difference between OPC and sole proprietorship.
• Unlike a private limited or public limited company (listed or unlisted), OPCs need not bother too much about compliances.
• Businesses currently run under the proprietorship model could get converted into OPCs without any difficulty.
• OPCs require minimal capital to begin with. Being a recognized corporate, could well raise capital from others like venture capital financial institutions etc., thus graduating to a private limited company.
• Mandatory rotation of auditor after expiry of maximum term is not applicable.

• The annual return of a One Person Company shall be signed by the company secretary, or where there is no company secretary, by the director of the company. • The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of general meetings, shall not apply to a One Person Company.
• A One Person Company needs to have minimum of one director. It can have directors up to a maximum of 15 which can also be increased by passing a special resolution as in case of any other company.
• For the purposes of holding Board Meetings, in case of a one person Company which has only one director, it shall be sufficient compliance if all resolutions required to be passed by such a Company at a Board meeting, are entered in the minutes-book, signed and dated by the member and such date shall be deemed to be the date of the Board Meeting for all the purposes under this Act. For other One Person Companies, atleast one Board Meeting must be held in each half of the calendar year and the gap between the two meetings should not be less than 90 days.
• The financial statements of a one person company can be signed by one director alone. Cash Flow Statement is not a mandatory part of financial statements for a One Person Company. Financial statements of a one person company need to be filed with the Registrar, after they are duly adopted by the member, within 180 days of closure of financial year along with all necessary documents.
• Board’s report to be annexed to financial statements may only contain explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.