Author Name:   Shreyaa

An OPC is a hybrid structure, wherein it combines most of the benefits of a sole proprietorship and a company from of business. Thus, it does away with the hassles of finding the right kind of co-partner/s for starting a business as registered entity.

Introduced in The Companies Act, 2013 [No.18 of 2013] OPC i.e. ‘one person company’ enables growth and greater regulation of the corporate sector in India. It is a step forward to facilitate more business friendly corporate regulations in India. The matter was first recommended by the expert committee of Dr. JJ Irani in 2005. Though the concept of OPC is new in India but it is very successful form of business in UK and several European Countries since a very long time.

In the old Companies Act, if one wanted to set up a private company one needed at least one other person because the law mandated a minimum of two directors and shareholders. So, for the person wanting to venture alone, the only option was proprietorship. However, in cases of one Person Company only one person is required who can be a shareholder as well as the Director allowing them to create a single person entity.

Section 2 (62) reads as follows: “one person company means a company which has only one person as a member.”

An OPC is a hybrid structure, wherein it combines most of the benefits of a sole proprietorship and a company from of business. Thus, it does away with the hassles of finding the right kind of co-partner/s for starting a business as registered entity.

It shall be important to note that section 3 classifies OPC as a private company for all the legal purposes with only one member. All the provisions related to the private company are applicable to an OPC, unless otherwise expressly excluded.

The only exception provided by the Act to an OPC is that according to the rules only “NATURALLY BORN” Indian who is also a resident of India is eligible to incorporate an OPC. Meaning thereby, only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate an OPC and shall be the nominee of the OPC.

SALIENT FEATURES:ss

Ø  OPC has only one person as a member/shareholder.

Ø  OPC can be registered only as a Private company.

Ø  OPC may be either a company limited by share or a company limited by guarantee or an unlimited company.

Ø  An OPC requires that it must have a minimum of one Director the sole shareholder can himself be the sole Director. The company may have a maximum of 15 directors (As per the companies act, if nothing is mentioned in the incorporation document, it would be assumed that the sole shareholder shall also be the sole director in the OPC and which shall be particularly the case in most OPC incorporated).

Ø  The person forming the OPC has to nominate a Nominee.

Ø  An OPC limited by shares shall comply with the following requirements:

1.      Shall have minimum paid up capital of INR 1 Lac

2.      Restricts the right to transfer its shares

3.      Prohibits any invitations to public to subscribe for the securities of the company.

Ø  An OPC is required to give a legal identity by specifying a name under which the activities of the business could be carried on.

Ø  The words “one person company” should b mentioned below the name of the company, wherever the name is affixed, used or engraved.

ELIGIBILITY NORMS FOR INCORPORATION AND NOMINEE MEMBER:

As per rule 3(1) of the Companies (Incorporation) Rules 2014, only a natural person who is an Indian Citizen and resident in India shall be eligible to Incorporate/form an OPC. Indian resident means who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.

At the time of the incorporation of OPC, the sole member of OPC is required to appoint another person as his nominee and his name shall have to be mentioned in the Memorandum of Association of the OPC.

Ø  A nominee for OPC has to be a natural person who is an Indian citizen and resident in India.

Ø  No person shall be eligible to become a nominee in more than one OPC.

THE NOMINEE SO APPOINTED SHALL BECOME THE MEMBER IN THE FOLLOWING SITUATION:

1.      In the event of the sole member’s death; or

2.      In the event of the sole member becoming incapacitated to contract.

A nominee so appointed is required to give his written consent for the same which is required to be filed with the ROC at the time of incorporation of the OPC along with its Memorandum and Article of Association.

A nominee has the right to withdraw his consent if he so desires.

Following cannot be member of OPC:

Ø  A minor shall not be eligible to become a member or nominee of the OPC or can hold share with beneficial interest.

Ø  Foreign citizen.

Ø  Nonresident.

Ø  A person incapacitated to contract.

Ø  Persons other than natural person (living human being).

In case of withdrawal of consent by the nominee the sole member shall nominate another person as nominee within 15 days of the receipt of notice of withdrawal and shall send an intimation of such nomination in writing to the Company, along with the written consent of such other person. The company shall within 30 days of receipt of the notice of withdrawal of consent has to file with the registrar, a notice of such withdrawal of consent and the intimation of the name of another person nominated by the sole member and the written consent of such another person.

Thus, as per rule 4 of The Companies (Incorporation) Rules 2014:

1.      Memorandum of OPC should mention the name of the nominee by the OPC subscriber with the Registrar in Form No. INC.2

2.      The consent of his nominee is to be filed in form no. INC.3

3.      OPC to file with the Registrar within 30 days any change in membership

4.      Form no. INC.4 is to be filed for the intimation for such cessation and nomination.

Steps to Incorporate One Person Company (OPC)

1. Obtain Digital Signature Certificate [DSC] for the proposed Director(s).
2. Obtain Director Identification Number [DIN] for the proposed director(s).
3. Select suitable Company Name, and make an application to the Ministry of Corporate Affairs for availability of name. 
4. Draft Memorandum of Association and Articles of Association [MOA & AOA]. 
5. Sign and file various documents including MOA & AOA with the Registrar of Companies electronically. 
6. Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty. 
7. Scrutiny of documents at Registrar of Companies [ROC].
8. Receipt of Certificate of Registration/Incorporation from ROC.

OTHER INFORMATION TO BE PROVIDED:

A.      The applicant should provide the following details:

1)      Proposed name: maximum 6 names can be quotes which will be considered on the basis  of name subscribed(first to last basis)

2)      Proposed business to be carried on

3)      Capital to be contributed for the formation

4)      Details of the nominee

B.      After obtaining name, availability, within 60 days we have to file incorporation documents with ROC. The following are the attachments:

1)      Memorandum of Association of the company

2)      Articles of Association of the company

3)      Proof of identity of the members and the nominee

4)      Residential proof of the member and the nominee

5)      Consent of the nominee in form INC.3

6)      Affidavit from the subscriber and first director to the memorandum in the form no. INC.9

7)      Specimen signature in form INC.10

8)      List of all the companies (specifying their CIN) having the same registered office address, if any; specimen signature in form INC.10

9)      Consent from the director

10)  Proof of registered office address

11)  Copy of the PAN card of member and nominee

12)  Details of duration of start at present address if it is less than one year (address of the previous residence has to be provided)

13)  Details of the name of the nominee

STATUS - WHETHER PRIVATE LIMITED OR PUBLIC LIMITED?

Section 2(68) of the Act provides for the definition of private company to include OPC. It also explicitly excludes OPC from the condition for minimum number of member’s for its formation i.e. 2 for its formation. This implies that all the provisions of the act which is applicable to a private company shall also be applicable to OPC unless otherwise it is specifically excluded from its compliance. Also section 3 of the Act further clarifies that OPC shall be treated as a private company for all legal purposes with only one member.

TYPES OF OPCS:s

One person company may be:

1)      An OPC limited by shares or

2)      OPC  limited by guarantee and having share capital or

3)      OPC limited by guarantee and having no share capital

4)      OPC unlimited having share capital

5)      OPC unlimited not having share capital.

OPC IS REQUIRED TO FILE ANNUAL RETURN:

As per the provisions of section 92(1) of the Companies Act, 2013, the annual return in case of OPC shall be signed by the company secretary, or where there is no company secretary, by the director of the OPC.

FINANCIAL STATEMENTS:

1.      The financial statements of OPC can be signed by one Director alone.

2.      Cash flow statement is not a mandatory part of financial statements for an OPC [section 2(40)]

3.      Board 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.

4.      OPC should file a copy of the financial statements salong with all the documents which are required to be attached to such financial year.

ANNUAL GENERAL MEETING:

As per section 96(1) of the Companies Act 2013, the provision relating to holding of the AGM is not mandatory for an OPC.

BOARD MEETING:

At least 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.

For the purposes of holding board meetings, in case of OPC which has only one director, it shall be sufficient compliance if all resolutions to be passed by such a company at a board meeting, are entered in the minutes book required to be maintained under section 118 and 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. If OPC has only one director, it is exempted from holding board meetings.

AUDIT AND AUDITORS:

COMPULSORY ROTATION OF AUDITORS- NOT APPLICABLE

Provision for compulsory rotation of auditors in section 139(2) are not applicable to OPC as they apply to listed companies and companies belong to such class or classes as may be prescribed (unless central govt. applies it to OPCs through notification).

An OPC has to file annual returns, balance sheet, and Profit and loss statement within 180 days of closure of FY.

CESSATION OF OPC STATUS:

As per rule 6(1) of the Companies Incorporation rules 2014, OPC shall cease to be entitled to continue as an OPC if:

1.      Its paid up capital exceeds 50 lacs, or

2.      Its average annual turnover during the relevant period i.e. immediately preceding 3 consecutive financial years exceeds 2 crores

3.      Intimation for increase in the threshold limit has to be filed in form INC.5

CONVERSION OF PRIVATE COMPANIES INTO OPC:

1.      A private company other than a company registered under section 8 of the act having paid up share capital of 50 lacs or less or average annual turnover during the relevant period is 2 crores or less may convert itself into one Person Company by passing a special resolution in the general meeting.

2.      No objection in writing from members and creditors is required before passing resolution.

3.      A copy of special resolution has to be filed with the registrar within 30 days.

4.      The company shall file an application to the registrar along with the following documents:

i)                    The directors of the company shall give a declaration by way of affidavit duly sworn in confirming that all the members and creditors of the company have given their consent for conversion, the paid up share capital of the company is 50lacs or less or average annual turnover is less than 2 crores, as the case may be;

ii)                  The list of members and list of the creditors;

iii)                The latest audited balance sheet and profit and loss account; and

iv)                The copy of no objection letter of secured creditors.

TAXATION OF OPC:

Though the concept of an OPC has been incorporated in The Companies Act, 2013 but the concept of the same does not exist in the tax laws yet, as a result an OPC can be put in the same bracket of taxation as other private companies. In case of sole proprietorship, business income is added to the individual income and hence tax slab between 10% and 30% is available. But the same is not the case with private company. According to Income tax Act, 1961 a private limited company is taxable at a flat base rate of 30% in addition to that surcharge and education cess is also applicable. Also, provision of MAT (minimum alternate tax) is also applicable to the private company.

CONTRACTS BY ONE PERSON COMPANY:

If OPC limited by shares or by guarantee enters into a contract with the sole member of the company, who is also the director of the company and where the contract is not in writing, it should be ensured that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract. The said provision is not applicable in case the contract is in writing and where the contract entered is by the company in the ordinary course of its business.

The company should inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its board of Directors within a period of 15 days of the date of approval by the Board of Directors.

ADVANTAGES:

1.      Limited Liability Protection to Directors and Shareholder: All unfortunate events in business are not always under an entrepreneur’s control; hence it is important to secure the personal assets of the owner, if the business lands up in crisis. Thus, OPC gives the person a security from any kind of mishap by restricting his liability.

2.      Complete Control Of The Company with the Single Owner: This leads to fast decision making and execution. Yet the entrepreneur can appoint as many as 15 directors in the OPC for administrative functions, without giving any share to them.

3.      Easy to Get Loan from Banks: Banking and financial institutions prefer to lend money to the company rather than proprietary firms. In most of the situations Banks insist the entrepreneurs to convert their firm into a Private Limited company before sanctioning funds. So it is better to register the startup as a One Person private limited rather than proprietary firm.

4.      Tax Flexibility and Savings: In an OPC, it is possible for a company to make a valid contract with its shareholder or directors. This means as a director one can receive remuneration, as a lessor one can receive rent, as a creditor one can lend money and earn interest. Directors’ remuneration, rent and interest are a deductible expense which reduces the profitability of the Company and ultimately brings down taxable income of the business.

5.      Easy to Manage and Freedom Compliance: OPC is one of the easiest forms of corporate entities to manage. Very few ROC filing is to be filed with the Registrar of Companies (ROC). No need to conduct Annual General Meeting (AGM)

DISADVANTAGES:

1.      OPC cannot carry out non banking financial activities including investing in shares of another body corporate.

2.      OPC cannot get converted to a private or public limited company unless 2 years have expired from the date of incorporation.

3.      OPC cannot get converted to section 8 companies.

4.      OPC shall inform the registrar of companies about every contract entered into by the company and recorded in the minutes of the meeting of its board of directors within 15 days from the date of approval by the board.

DIFFERENCE BETWEEN LLP, OPC AND SOLE PROPRIETORSHIP

Follow the Procedure Below To Submit Your Articles

Submit your Article by using our online form Click here
Note* we only accept Original Articles, we will not accept Articles Already Published in other websites.
For Further Details Contact: editor@legalserviceindia.com

File Your Copyright - Right Now!