The One Person Company (OPC) concept was introduced in India by enacting the Companies Act of 2013, aiming to encourage entrepreneurship and facilitate small businesses. OPC is an innovative business structure that allows a single individual to operate a company with limited liability protection and a separate legal identity. This article will delve into the various types of OPC, understanding their unique features, advantages, and suitability for different entrepreneurial ventures.
OPC Limited by Shares
The most commonly chosen type of OPC is the one limited by shares. In this structure, the liability of the company’s shareholder is restricted to the individual’s unpaid claims.
The key features of this type include:
– Minimum Paid-up Capital: An OPC limited by shares must have a minimum paid-up share capital of ₹1 lakh or as prescribed by law.
– Restriction on Share Transfer: To maintain the essence of a one-person company, there are restrictions on transferring shares to others.
– No Public Offerings: OPC limited by shares cannot invite the public to subscribe to the company’s shares or securities.
– Directors Limit: This type of OPC can have up to 15 directors, which can be increased by passing a resolution.
OPC Limited by Guarantee with Share Capital
In an OPC limited by guarantee with share capital, members provide guarantees instead of shares. This type is less common but is suitable for specific business objectives. Key features include:
– Guarantee Amount: Members commit to providing guarantees for a specific amount, which serves as the company’s capital.
– Issuance of Shares: The company may still issue shares as capital to conduct business activities.
– Limited Liability: The liability of the members is limited to the guarantee amount they have committed to pay.
OPC Limited by Guarantee without Share Capital
Like the previous type, an OPC limited by guarantee without share capital operates without issuing shares. Non-profit organizations or social enterprises more commonly adopt this structure. Key features include:
– Non-Profit Basis: The company operates on a non-profit basis, utilizing the guarantees provided by members for its activities.
– Limited Liability: The liability of the members is limited to the guarantee amount they have committed.
Unlimited OPC with Share Capital
An unlimited OPC with share capital is less favored, exposing the shareholder to total personal liability beyond the unpaid share amount. Key features include:
– Unlimited Liability: The shareholder’s assets are at risk beyond the unpaid shares in case of company debts or liabilities.
– Separate Legal Identity: The OPC remains a separate legal entity despite unlimited liability.
Unlimited OPC without Share Capital
Like the previous type, an unlimited OPC without share capital operates without issuing shares as capital. Key features include:
– Unlimited Liability: The shareholder’s assets are at risk beyond the company’s debts and obligations.
– No Issuance of Shares: The company does not issue shares as capital, relying solely on the shareholder’s unlimited liability.
Eligibility Criteria for Shareholder and Nominee Member
To form an OPC, the shareholder and nominee member must meet specific eligibility criteria:
– Natural Person: Both the shareholder and nominee must be individuals and cannot be corporations or other entities.
– Indian Citizenship and Residency: BTheshareholder and nominee must be Indian citizens and residents of India.
– Not a Minor: The shareholder and nominee must not be minors at incorporation.
– Single OPC Membership: A person can be a member or nominee of only one OPC at a time.
Importance of Appointing a Nominee Member
During the incorporation of an OPC, the sole owner must appoint a nominee member who will assume ownership in case of the owner’s death or incapacitation. The nominee ensures business continuity, safeguarding the company’s interests.
Incorporation Process and Required Documents
To incorporate an OPC, the following steps and documents are typically required:
1. Check Eligibility and Gather Documents:
Ensure that all eligibility criteria are met and collect necessary documents, including identity proofs, address proofs, and ownership documents.
2. Obtain Digital Signature Certificate (DSC):
Obtain a DSC to sign and submit documents during the incorporation process electronically.
3. Acquire Director Identification Number (DIN):
Apply for a DIN for each director involved in the company.
4. Check Name Availability:
Verify the availability of the desired company name through the MCA website.
5. File Spice+ Form:
Complete the incorporation process by filing the Spice+ form online.
6. Apply for TAN and PAN:
Once the application is verified successfully, the Registrar of Companies (RoC) will provide a Certificate of Incorporation along with the PAN and TAN information.
7. Certificate of Incorporation:
Upon successful verification of the application, the Registrar of Companies (RoC) will issue a Certificate of Incorporation, along with the PAN and TAN details.
Advantages of One Person Company (OPC)
One Person Company (OPC) offers numerous advantages to entrepreneurs, providing them with a unique business structure that combines limited liability with the ease of running a single-person business. Here are some:
1. Limited Liability: One of the advantages of OPC is the concept of liability, which ensures that the owners’ assets are safeguarded from any debts or liabilities associated with the company. This provides a benefit compared to a proprietorship business model, where the owners’ assets are entirely vulnerable to potential business risks.
2. Separate Legal Entity: OPC enjoys a separate legal identity, distinct from its owner. This enables the company to enter into contracts, own property, and sue or be sued in its name. As a result, the company’s obligations and liabilities are separate from the owner’s, providing credibility to the business and building trust among stakeholders.
3. Perpetual Succession: OPC has perpetual succession, ensuring that the company continues to exist even in the event of the owner’s demise or incapacitation. The nominee member takes over ownership, allowing for seamless business continuity.
4. Ease of Compliance: Compared to other forms of companies, OPCs have relatively more straightforward compliance requirements. With a single owner, decision-making processes are streamlined, resulting in quicker and more efficient decision-making.
5. Access to Capital: OPCs can raise capital through equity funding, angel investors, or venture capitalists. The issuance of shares allows the company to attract investments and expand its operations.
6. Lower Taxation: OPCs are subject to lower tax rates, especially when compared to sole proprietorships. They also enjoy the benefits of tax deductions and allowances available to private limited companies.
7. Single Ownership: As the name suggests, OPC is owned and controlled by a single individual, which allows for autonomy in decision-making and operations. This helps maintain a clear vision and a focused approach to business growth.
Challenges of One Person Company (OPC)
While One Person Company (OPC) offers several benefits, it also comes with specific challenges that entrepreneurs must be aware of and address to ensure their businesses’ smooth functioning and growth. Let’s take a look at some of those challenges:
1. Limited Capital Infusion: The requirement of a minimum paid-up capital of ₹1 lakh for OPC limited by shares may pose a challenge for some entrepreneurs, especially those starting with limited funds. Raising initial capital can be a hurdle, especially for ventures that require significant investment.
2. Limited Growth Potential: OPCs have a restriction on the number of directors (up to 15) and cannot invite the public to subscribe to shares. This limitation can hinder the company’s ability to attract expertise and diverse skill sets from external sources, which may be essential for certain businesses to scale rapidly.
3. Regulatory Compliance: Although OPCs have compliance requirements compared to types of companies, they still have to follow the legal obligations outlined in the Companies Act and other regulatory guidelines. Failing to comply can lead to penalties and legal repercussions.
4. Nominee Challenges: Appointing a nominee member can be a critical decision for the owner, as the nominee may assume ownership in case of unforeseen events. Choosing a trustworthy nominee and ensuring smooth communication with them is essential for the company’s continuity.
5. Perception and Trust: OPCs may face challenges in establishing trust and credibility, particularly in comparison to traditional private limited companies. Some stakeholders, such as vendors or clients, might prefer dealing with well-established entities.
6. Limited Banking Facilities: Some banks may have stringent policies regarding opening bank accounts for OPCs, which can create hurdles in managing financial transactions and accessing banking facilities.
Conclusion
One Person Company (OPC) is a revolutionary concept that empowers solo entrepreneurs to establish and run businesses with limited liability protection. The various types of OPC cater to diverse business objectives, risk appetites, and long-term visions. To make informed decisions aspiring entrepreneurs should understand these multiple types. It’s crucial to seek expert guidance or refer to government sources for the latest information, as laws and regulations can change over time. OPCs play a role in promoting innovation and entrepreneurship, which significantly contributes to the development of the business environment in India.
