Concept of a One Person Company (OPC)
‘One person company’ is a type of legal entity which has been introduced by the Companies Act 2013. In the Companies act 1956, a minimum of two directors and shareholders were required to form a private limited company. Same continues in the new Companies Act, 2013. However, a type of private limited Company, namely a One Person Company has also been introduced which can have only one shareholder (as opposed to two in a traditional private limited Company). Also the minimum number of Directors in a One Person Company is one as compared to two in a traditional private limited Company.
The concept opens up possibilities for sole proprietors who can take the the advantages of Limited liability and corporatisation but were held back in doing so because of the requirements of finding a second director or second shareholder.
A small note on what is meant by limited liability
The biggest difference between a sole proprietor and a One Person Company would be that in case of a One Person Company, your liability in case the business fails, is limited to only the business assets. in case of a proprietorship, the liability is unlimited and the creditors of your business can even take hold of your home and personal assets like your house, personal bank accounts, jewellery etc which can be used to settle the business liabilities.
- One share holder:
This is the fundamental concept of a One Person Company. In fact, One Person Company is defined in the Companies Act as a Company which has only one member. A single shareholder holds 100 percent shareholding. The thing to be kept in mind is that the Company Incorporation Rules provide that only a natural person who is a resident of India and also a citizen of India can form a one person company. It means that other legal entities like companies or societies or other corporate entities cannot form a one person company Further it also means that Non resident Indians or Foreign citizens can not form a One person company. Further the rules also specify that a person can be a shareholder in only a single One person company at any given time. It simply means an individual cannot have two different one person companies in his name.
- One Director
The other important point is that a One Person Company may have only one director. But at the same time there is no bar on more number of directors. However, as per the Act, the total number of directors shall not be more than 15. As per the Companies Act, if nothing is mentioned in the incorporation document, it would be assumed the sole shareholder shall also be the sole director in the one person company .
This is a very important concept where the person forming the One Person Company has to nominate a Nominee with his written consent who, in the event of death or inability to contract of the owner of the One Person Company, shall come forward and take over the reins of the one person company. Please note that the requirements of being a resident Indian and citizen of India also apply to the nominee. Further if the person so nominated becomes the member of such a One Person Company and is already a member of another One Person Company, at the same time, by virtue of the Company Rules, has to decide within 6 months which one person company he has to continue. One more thing, the member can change the nominee at any point of time.
On the death of the sole member, the nominee shall be the person recognised by the company as having title to all the shares of the member. Such nominee shall be entitled to the same dividends and other rights and liabilities to which such sole member of the company was entitled or liable. On becoming member, such nominee shall nominate any other person with the prior written consent of such person who, shall in the event of the death of the member, become the member of the company
The rates of taxation applicable for a private limited company shall apply to a One Person Company. Presently the effective rates are 26% (25% plus Cess) for Companies under the old regime, around 25.2% for new regime and approx. 17.16 % for new manufacturing Companies.
- Freedom from compliance
One Person Company also gets freedom from complying with many requirements as normally applicable to other private limited Companies. Certain sections like Section 96, 98 and sections 100 to 111 are not applicable for a One Person Company. Some of these are mentioned below:
- No requirement to hold annual or extra ordinary general meetings. Only the resolution shall be communicated by the member of the company and entered in the minutes book and signed and dated by the member and such date shall be deemed to be the date of meeting.
- For the purposes of holding board meetings, in case of an OPC 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 a minute book – signed and dated by the member and such date shall be deemed to have the date of the board meeting for all the purposes under Companies Act, 2013.
- No requirement of preparing cash Flow in the annual financial statements
- Annual returns can be signed by the Director himself instead of A Company Secretary
- Related Party Transactions
Where One Person Company enters into a contract with the sole owner of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure 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. Further, the company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors under sub-section (1) within a period of fifteen days of the date of approval by the Board.
This clause shall be very much in vogue since the business of the One Person Company may use many assets of the owner and may pay compensation for that. Examples may be rent paid for using property or machinery or Furniture owned by the Owner. It may pay interest on loans taken from the owner. It may pay salaries to the Owner. All these contracts are covered under the section.
- Brief process of Incorporation:
Procedure to start a one person company is almost the same as that of a private limited Company. Broad steps can be mentioned as below:
- Name reservation
- Obtaining Digital signature of the proposed shareholder, consent letters, Other documents and declarations from the shareholder/ Director and the nominee ( Nominee is a person who shall be the shareholder in case of death or mental or physical incapacity of the existing sole shareholder).
- Finalising the MoA and AoA (including business objectives)
- Uploading the Spice + forms including the e-MoA and e-AoA
- Opening the bank account and depositing the initial subscription amount by the shareholders.
- Filing the form for registered office address within 30 days of incorporation (if not mentioned in the incorporation form)
- Filing the Certificate to commence business within 180 days of incorporation including the twin conditions of deposit of the initial subscription amount and the registered office address.
Please note that the words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.
- Conversion from one person company to private limited company
Compulsory Conversion: It is provided in the Act that when a One Person Company reaches a paid up Capital of 50 lakh rupees or more and when the average turnover of the company which is Rs. 2 Crores or more for a period of 3 years, then the company shall be converted, within 6 months, into a private limited company after making the necessary changes in the memorandum of association and articles of association and shall comply with all the requirements of a private limited company
Voluntary Conversion: OPC can voluntarily convert itself into a private limited Company, without meeting the requirements mentioned above, only after two years or more has expired from the date of incorporation of the Company.
Conclusion: This is a concept which shall be a big impetus to Corporatisation in the country.