The government with the aim of promoting entrepreneurship among the individuals, introduced the concept of One Person Company (hereinafter referred as “OPC”) under the Companies Act, 2013. This OPC provided a platform to the individuals to incorporate their business with multiple benefits such as limited liability, separate legal entity which earlier were majorly concentrated to the larger companies, enhancing India’s economic growth and motivating the individual to pursue their dream of becoming entrepreneur.
One Person Company – Section 2 (62) Of The Companies Act, 2013
Prior to 2013 Amendment, the concept of One Person Company was in toto a foreign concept for the Indian entities, however the legislature with the introduction of Section 2(62) under the Companies Act introduced this concept. This has opened a gateway for individuals as they can form a company with just 1 Director and 1 member. The main idea of the legislature behind the introduction of OPC was to eradicate the short-comings of the sole-proprietorship business model, which primarily is the most popular form of business model among small investors in India as the liability of the owner is directly proportional to the capital investment in the business.
However, there exists a striking difference between OPC and sole proprietorship as the OPC has its own separate legal entity and has its own liabilities and assets different from its promoters, whereas the same is not the case with sole proprietorship.
Key Characteristics And Requirements Of One Person Company
Though OPC has many distinguished characteristics and requirements, few are mentioned below:
- Only natural person who is Indian citizen and Indian resident may form OPC and be a nominee in the same
- The sole member of the OPC shall nominate a person who shall take over the operations and management of the OPC in case of his death or permanent incapacitation.
- The OPC shall have “(OPC) Pvt. Ltd” at the end of its name.
- OPCs can be converted into a public or private limited company mandatorily if only certain threshold and conditions as mentioned in the Act are met (paid-up capital over ₹50 lakhs or annual turnover over ₹2 crores)
- No minimum paid up share capital is required for the incorporation of the OPC.
- OPC shall comply with all the statutory requirements such as audit, income tax and maintenance of books of account and annual filings with the Registrar of Companies.
Benefits Of OPC
- Suitability for solo and small business models: OPC is considered to be most appropriate for solo and small business as it aims at providing certain additional benefits such as quick and easy formation, limited liability, less burden of compliance etc. It also gives complete ownership over business while operating as corporate firm.
- Easy Formation: The formation of OPC is quite easy. The registration as OPC can be done online on the MCA portal and with less hassle of maintaining the paperwork as only one member and one nominee is required for incorporation.
- Perpetual Succession: OPC offers a perpetual succession similar to a private or public company i.e. it will continue to operate irrespective of the death or incapacity of its sole member. However, in such cases, the nominee may take over the company and its affairs.
- Limited Liability: The liability of the member of the OPC is limited up to the amount of unpaid shares held by him. It means that the creditors have no right of recovery of their debt by selling the personal assets of the member in case OPC suffers from loss.
- No Minimum Paid-Up Share Capital Required: The requirement for minimum paid up share capital by OPC has been dispensed with by the Legislature by way of an amendment in the year 2015.
Relaxations And Exemptions For OPC
- No Annual General Meeting is required to be conducted by OPC.
- Only two board meetings are required to be conducted in an year, one in each half of the year. But a gap of 90 days shall be there between two meetings.
- The OPC are exempted from the requirement of Cash flow Statement in its financial statements.
- No independent directors are required to be appointed separately.
- The annual return i.e. (Form MGT 7 A) is to compulsorily required to be signed by a practicing CS.
- If there is only 1 director in an OPC, it is not required to comply with Secretarial Standard – 1 (Meeting of the Board of Directors). Further, Secretarial Standard – 2 (General Meetings) is also not applicable to an OPC.
Disadvantages Of OPC
- Limited Access to Funds: As there can be only one member, raising of funds by issuing shares and Employee Stock Option Plans is not permitted, as a result OPC has limited access to funds.
- Restriction on Certain Activities: Carrying of NBFC activities are prohibited for OPCs. Also, there is a bar on conversion of OPCs into companies as mentioned under Section of the Companies Act’2013.
- Suitable for Small Businesses Only: General suitability of OPCs is for small business only as there can be just one member or shareholder. There exists no separation between ownership and management of company.
- Higher Tax Liability: Irrespective of all the benefits given to OPCs, their profits are taxed at a similar rate as other companies as the company is always considered an artificial person having distinct and separate legal; entity from its member.
Conclusion
To conclude in short, we can easily say that OPC acts as an ideal business model for small businesses only. The retention of control fully by the sole owner over the operations of the company, through a legally registered business, often gives the sole owner advantages over others as in the same industry. However, the suitability of the OPC registration often depends upon business to business depending upon the nature and scale of business operations and a person shall opt for OPC after considering and weighing all its pros and cons before selecting it for himself/herself.