A One Person Company under Companies Act, 2013 is a distinct type of corporation characterised by its formation with a solitary individual as its sole member. Thus, an OPC effectively operates as an enterprise with a sole stakeholder as its singular member. This organisational structure is commonly adopted in situations where a business venture is initiated and led for small business purposes like SMEs.
The selection of OPCs over sole proprietorships is often driven by the various advantages they offer. The fundamental purpose behind introducing the concept of OPC is to encourage and facilitate entrepreneurial endeavours and business growth in the country.
Key Attributes of One Person Company under Companies Act, 2013
The key features of a One Person Company under Companies Act, 2013 are as follows:
Private Company Structure of One Person Company under Companies Act, 2013
An important aspect of a One Person Company (OPC) is that it falls under the category of private corporations as defined by Section 3(1)(c) of the Companies Act. This means that an individual can establish a company for legitimate purposes.
Distinct Legal Identity
An OPC needs to have a unique name that acts as its legal identifier. All the activities of the company should be carried out under this designated name.
Single Member
Unlike other private companies, OPCs are limited to having only one member or shareholder. This singular ownership structure is a defining characteristic of a One Person Company under Companies Act, 2013.
Directorship Requirements of One Person Company under Companies Act, 2013
An OPC must have a minimum of one director, who is typically the member themselves. The number of directors can go up to 15.
Restriction on Multiple One Person Companies under Companies Act, 2013
An individual who establishes an OPC is legally restricted from setting up multiple OPCs. This ensures that one person can only establish one OPC.
Nominee Designation
One distinct feature setting OPCs apart is that the sole member of the company needs to appoint a nominee during the registration process.
Flexibility in Nominee’s Name
The OPC member has the flexibility to change the nominee’s name when needed. Formal notification to the company and subsequently to the Registrar of Companies (RoC), is required for this change.
Succession Process
In the event of the death of the sole member of an OPC, the nominee takes the decision to either assume or decline the position of the sole member. This contrasts with other types of companies that follow the principle of perpetual succession.
Mandatory Inclusion
The phrase ‘one person company’ should be visibly included just below the company’s name in all instances where the company’s name is used.
Conversion Possibilities
An OPC cannot be transformed into a company focusing on various activities like trade, art, education, environmental protection, public assistance, etc. However, in specific circumstances, conversion into a private or public company is permitted.
No Minimum Paid-Up Capital for One Person Company under Companies Act, 2013
Unlike other business structures, the Companies Act of 2013 does not impose a minimum paid-up capital requirement for OPCs.
Special Privileges for a One Person Company under Companies Act, 2013
Under the Companies Act, OPCs enjoy certain privileges and exemptions not extended to other types of companies:
- No obligation to produce a cash flow statement.
- If an OPC lacks a secretary, the director can sign the annual report.
- No legal mandate to conduct an Annual General Meeting.
One Person Company under Companies Act, 2013: Registration Checklist
To successfully register a One Person Company under Companies Act, 2013, the following checklist is must:
- Membership Criteria:
An OPC can have a minimum of one member and a maximum of one member.
- Nominee’s Consent:
Obtain the consent of the nominee using Form INC-3. This confirms their willingness to take on the responsibility.
- Name Selection:
The name of the OPC should be chosen in accordance with the provisions stated in the Companies (Incorporation Rules) 2014.
- Digital Signature Certificate (DSC):
Acquire the Digital Signature Certificate of the proposed director. This is an essential digital identification for online filings.
- Registered Office Proof:
Furnish valid proof of the registered office of the OPC. This can be documents like rental agreements or utility bills.
Mandatory Documents for Registration of One Person Company under Companies Act, 2013
When registering a One Person Company under Companies Act, 2013, the following documents are necessary:
- PAN Card of Owner and Nominee:
The Permanent Account Number (PAN) card details of both the owner and the nominated individual are required.
- Aadhar Card of Owner and Nominee:
The Aadhar card information of both the owner and the nominee is essential for verification.
- Passport Size Photos:
One passport-size photograph each of the owner and the nominee needs to be provided.
- Email ID:
An active and valid email address for communication purposes during the registration process.
- Contact Number:
A contact number through which the company authorities can reach out for further communication.
- Proof of Address:
Documents like for example, bank statements, telephone bills or electricity bills from the last two months serve as proof of address.
- Notarised Rent Agreement:
If the premises are rented, a notarised rent agreement should be provided.
- No Objection Certificate (NOC):
A No Objection Certificate from the property owner, allowing the use of their premises as the registered office of the company.
- Property Ownership Proof (In Case of Owned Property):
If the property is owned, documentation such as a sales deed indicating property ownership is required.
Advantages of One Person Company under Companies Act, 2013
There are numerous advantages for One Person Company under Companies Act, 2013, including:
Limited Liability Safeguard
One of the prime benefits of a One Person Company under Companies Act, 2013 is the assurance of limited liability protection for both directors and shareholders. This means that the personal assets of the owner are separate from the company’s liabilities, safeguarding them from financial risks.
Sole Proprietor’s Full Authority
The owner of an OPC holds complete control over the company’s decisions and operations. This authority allows for simplified decision-making and quicker implementation of strategies.
Tax Efficiency and Adaptability
OPCs enjoy tax advantages and flexibility in terms of taxation. The structure allows for efficient tax planning, resulting in potential savings. Additionally, the OPC structure permits easy transition to higher tax brackets as the business grows.
Reduced Formalities
Compared to other types of companies, OPCs involve fewer formal legal requirements. This simplified regulatory environment makes compliance more manageable and allows entrepreneurs to focus more on business growth.
Enhanced Credit Accessibility of One Person Company under Companies Act, 2013
OPCs have improved access to credit from financial institutions and other organisations. The distinct legal entity status of the company enhances its credibility, making it more attractive to lenders for financial assistance.
Ease of Incorporation
The process of incorporating an OPC is straightforward and less complicated than setting up larger corporate structures. This simplicity speeds up the establishment process, allowing entrepreneurs to get their businesses up and running quickly.
Access to Government Schemes for One Person Company under Companies Act, 2013
OPCs might be eligible for certain government incentives, schemes and benefits aimed at promoting small and medium-sized enterprises and start-ups. This can provide financial assistance and support to the business.
Drawbacks of One Person Company under Companies Act, 2013
While a One Person Company (OPC) has its advantages, there are several drawbacks as well:
Limited Suitability for Small Businesses
OPC’s structure is suited for small businesses and it’s not possible to bring in additional members or shareholders to raise more capital. This limitation can hinder the company’s growth potential as the business expands.
Business Activity Restrictions
OPC faces restrictions in terms of business activities. It is prohibited from engaging in Non-Banking Financial Investment activities, including investing in securities of other corporate entities. Additionally, it cannot be converted into a company pursuing charitable objectives as defined under Section 8 of the Companies Act, 2013.
Ownership and Management Complexity
The single member of an OPC can also be its sole director, leading to a lack of clear demarcation between ownership and management roles. This integration might result in challenges distinguishing decision-making authority from ownership control.
Limited Funding Options
Due to its restricted nature, OPCs might face challenges in raising funds. Unlike other business structures, OPCs cannot issue shares or bring in external equity investments easily. This limited access to funding sources can hinder ambitious growth plans.
Conversion Restrictions
Transitioning from an OPC to another business structure, such as a private limited company, can be complex. Certain restrictions and formalities must be met and the process might involve legal and administrative intricacies.
Succession Planning
In the absence of a well-defined succession plan, the fate of the OPC could become uncertain upon the owner’s retirement, incapacitation or demise. This lack of continuity planning can disrupt business operations and potentially lead to its closure.
Final Thoughts
A One Person Company under Companies Act, 2013 framework offers a unique way for solo entrepreneurs to start their business operations. OPCs not only provide an opportunity for individuals to formalise their ventures but also present a range of advantages, such as limited liability protection, concentrated decision-making authority and tax benefits. This structure is particularly well-suited for small-scale enterprises seeking simplified compliance and enhanced access to credit. However, it’s important to acknowledge the drawbacks inherent to OPCs, including limitations on growth, business activities and potential complexities in ownership and management. Making an informed decision regarding formation of a One Person Company under Companies Act, 2013 requires a thorough understanding of both its benefits and challenges, ensuring alignment with the entrepreneur’s aspirations and business goals.
