The concept of one-person company (OPC) in India was introduced through the Companies Act. 2013 to support entrepreneurs who on their own are capable Of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a one-person company (OPC) is that there can be only one member in a OPC. While a minimum of two members are required for incorporating and maintaining a private limited company or a limited liability partnership (LLP) similar to a private limited company a one-person company is a separate legal entity from its promoter offering limited liability protection to its sole shareholder while having continuity of business and being easy to incorporate.
Though a One Person Company allows a lone Entrepreneur to operate a corporate entity with limited liability protection, an OPC does have a few limitations. For instance, every One Person Company (OPC) must nominate a nominee Director in the MOA and AOA of the Company – who will become the owner of the OPC in case the sole Director is disabled. Also, a One Person Company must be converted into a Private Limited Company if it crosses an annual turnover of Rs.2 crores and must file audited financial statements with the Ministry of Corporate Affairs at the end of each Financial Year like all types of Companies. Therefore, it is essential for the Entrepreneur to carefully consider the features of a One Person Company before incorporation.
One-person company (OPC) as per companies act 2013
As per provision of Section 2(62) of The Companies Act,2013, One-person company means a company which has only one-person member. Therefore, it is clear that there shall be only one person eligible to incorporate a one-person company under the Companies Act.
Use of Private Limited after the name
It is essential to use Private Limited name after the name of the company. This indicates that the liability of the person owning the company is limited to the extent of money due to be paid on the unpaid amount of the shares taken by him in the share capital of the company.
Benefits of owning a one person company
(a) Independent existence of the business from the other businesses carried out by the same person. Suppose the same person is owning 2 more proprietorship firms. The responsibility and liability of the person is un-limited towards the proprietorship firms of the owner. But if the same person makes one OPC, then liability of the owner is limited towards this OPC’s business. This means that whatever is the unpaid value of the shares allotted to him out of the authorised capital, the owner is liable to pay to the company, only to the extent of unpaid value of shares. Therefore, it becomes essential for those who deal with a OPC to know in advance that the businesses carried by the same person are not a part of business carried out by the OPC.
Accounting and finances
(b) The owner of the OPC is also able to keep the accounting and finances of the OPC separate from his other businesses. This will enable the owner to know the profits made by the OPC separately. This will enable the owner to decide the expansion and marketing requirement of that business.
Property on the name of the OPC
(c) Another benefit of the OPC to the owner is that the owner is able to purchase, maintain and sell any movable or immovable property on the name of the OPC. The property will be evaluated as property of the company and not the owner. For example the Govt of Delhi has restricted all the persons living in the capital to own only one flat. So the owner is restricted to purchase only one flat. So the Govt has the objection and his allotment is not legal of the second flat or residence. If the same owner makes a OPC and purchases the flat on the name of the OPC, the purchase is legally not objectionable only because the legal entity of the OPC is different from its owner.
(d) The tax liability becomes combined and more. But if the same person is have a OPC in addition, the taxes on the OPC will be separately levied as per the rates of taxation of the companies. Secondly, all the expenses of the firm will be written and accounted separately from the other businesses. Even personal expenses cannot be done from the income by the Director of the OPC. The net profit earned by the OPC can be further carried forward in the same account by paying the due taxes. Therefore, by this method the personal taxes of the owner will not increase.
Shares in the company
(e) The shares in the company cannot be given or allotted to any one else. If they are given to another person the company do not remain OPC, because it can have only one share holder. However the OPC can be converted into private limited company if two or more number of persons want to take the shares of the OPC. In such cases the company will require to file all the documents required for the purpose with the Registrar of Companies and pay the requisite fee to convert the same company into a private limited company.
Can appoint another person as working Director
(f) Another benefit is that the company can appoint another person as working Director by giving the designation of the Director. But the working Director will be in the board of the Directors in the technical sense means his name will not appear on the records of the Ministry of Corporate Affairs as Director and he will not have absolute powers of Director to manage the complete or all the affairs of the OPC.
Before exploring the concept of a one-person company, let us have a brief understanding of the various types of companies that can be formed. A company can be established for a lawful purpose by the following number of persons: Name of the Company has to be obtained from the Registrar of Companies and all documents have to be filed with the Registrar of Companies. After the formation, required returns have to be filed with the registrar of companies itself.
- Seven or more (unlimited) number of person in case of a public limited company.
- Two or more but limited to 50 person in case of a private limited company.
- One person in case of a one-person company.
Hence, before starting an OPC registration, its essential to understand the constraints and ensure the promoter is eligible as per the Companies Act to register a OPC.
- Only a natural person who is Indian citizen and resident in India can incorporate OPC
- Resident in India means a person who had resided in India for a period not lesser than 182 days in the prior calendar year.
- Legal entities like company or LLP cannot incorporate OPC.
- The minimum authorised capital RS 1,00,000.
- A nominee must be appointed by the promoter during incorporation.
- Businesses involved in financial activities cannot be incorporated as a OPC.
- A OPC must be converted to a private limited company when paid-up share capital exceeds Rs. 50 lakhs or turnover Rs. 2 crores.
A person can incorporate not more than one OPC finally an OPC is prohibited from having a minor as its member.
In case you have any doubt, kindly write your comments below and we shall get back to you and if the question is found very important, we shall include your question in our frequently asked questions on the web site.