An OPC is similar to a sole proprietorship but still has some basic differences. In an OPC, a single person owns all of the stakes and an OPC is treated as an independent entity, unlike a sole proprietorship. That means the owner of an OPC has limited liability and his personal property is always safe regardless of the business’s debt. Further, an OPC can have one person as a shareholder.
It is incorporated as a private company with one member. One Person Company’s major goal is to support the corporatization of micro-businesses and entrepreneurship. The formation was recommended by the JJ Irani Expert Committee in the year 2005.
Number of Shareholders and Directors in an OPC
The concept of an One Person Company (OPC) revolves around its single ownership structure. The permissible numbers for shareholders and directors in an OPC are as follows:
1. Shareholders (Members): One Person
An OPC lives up to its name by allowing only one individual to be the shareholder or member. This means that the minimum and maximum number of shareholders an OPC can have is solely one person.
2. Directors: Minimum 1, Maximum 15
An OPC must have at least one director, as mandated by the Companies Act. However, it can have a maximum of 15 directors. This number can be increased by passing a special resolution.
Distinct Features of an OPC
The distinct features of an OPC are as follows:
1. Singular Membership
An integral part of an OPC is its exclusive single-member ownership, setting it apart from conventional private companies. Simply, , an OPC can have one person as a shareholder or member only.
2. Private Company Structure
OPCs operate within the realm of private companies, as per the Companies Act of 2013. They enable individuals to establish a company solely owned by them, ensuring lawful objectives are pursued.
3. Nominee Membership
An important feature of OPCs involves the declaration of a nominee by the one member during the registration process. This nominee assumes responsibilities in case the owner faces incapacitation or demise.
4. Perpetual Succession
Like entities with perpetual succession, OPCs present a unique case. The individual nominated by the one shareholder or member has the option of taking over the OPC in case of the owner’s unavailability or incapacity.
5. Flexibility in Number of Directors
OPCs can function with a minimum of one director and a maximum of fifteen directors, a number that can be increased through a special resolution.
6. Capital Flexibility
OPCs enjoy flexibility in terms of minimum paid-up share capital, as the Companies Act of 2013 refrains from prescribing a specific amount.
7. Privileges and Exemptions
Incorporated under the Companies Act of 2013, OPCs claim exclusive advantages and exemptions not extended to other business structures. These privileges show their distinctive status in the corporate landscape.
Advantages of One Person Company (OPC)
Establishing a business as an OPC offers several advantages, including:
1. Limited Liability
The major advantage of OPC registration is the concept of limited liability. in OPC Shareholders and directors are liable only up to a certain extent. Personal assets of shareholders and directors are shielded from claims arising from company debts. In an OPC, with a single shareholder and director, limited liability provides enhanced financial security.
2. Separate Legal Entity
OPC enjoys the status of a separate legal entity, bestowing autonomy upon the shareholder and director. This distinct legal entity has the capacity to hold property, enter contracts and be sued or sue in its own name, detached from its owner.
3. Single Individual Operation
An OPC uniquely empowers a single individual to hold both the roles of a director and a shareholder. This eliminates the need for additional directors to comply with regulatory norms, streamlining operational complexities. As discussed, an OPC can have one person as a shareholder.
4. Singular Directorship
Under the Companies Act, an OPC requires just one director to manage its operations. There’s no obligation for independent or executive directors as mandated for public companies, reducing administrative burden.
5. Exclusive Shareholder
A single member suffices for an OPC as an OPC can have only one person as a shareholder.
This enables the shareholder to oversee the entity’s affairs.
6. Reduced Compliance Burden
Compliance demands for an OPC are significantly lighter compared to those for private or public limited companies. This translates to reduced paperwork, streamlined processes and less time-consuming regulatory adherence.
7. Enhanced Transparency
Filing compliances is a straightforward process for OPCs, creating transparency when dealing with governmental authorities. Both applicants and government entities benefit from increased transparency, promoting trust and smooth operations.
8. Elimination of Disputes
Unlike partnerships and private limited companies that necessitate various agreements, OPCs require no such agreements due to their sole proprietorship nature. With an OPC having only one person as a shareholder, disputes and coordination complexities are minimised.
9. Beneficial for MSME and SME Sectors
OPC registration proves advantageous for sectors like Micro, Small and Medium Enterprises (MSMEs) and Small and Medium Enterprises (SMEs). Particularly in rural areas, OPC facilitate uniform service provision. Additionally, MSMEs and SMEs can secure financing from public sector undertakings without exposing directors and OPC Shareholders to personal debt liabilities, boosting overall reputation.
Eligibility Criteria for Establishing an OPC
The eligibility criteria for establishing an OPC includes the following:
1. Individual Status: Only natural persons are eligible to initiate the formation of an OPC. No legal entity or company can undertake this role; it is reserved exclusively for individuals.
2. Indian Citizenship: The applicant must be a citizen of India, irrespective of what their residency status is.
3. Single OPC Membership: Any individual who wishes for OPC registration must not be a member of any other OPC. This ensures the commitment of one person to one OPC exclusively. This rule extends to the nominee as well. If the nominee finds membership in multiple OPCs, they are required to relinquish one of the memberships within 180 days.
Procedure for Registering an OPC
Registering a One-Person Company (OPC) involves a sequence of important steps for its establishment. These are:
1. Obtain Digital Signature Certificate (DSC)
The shareholder and nominee must acquire their respective Digital Signature Certificates (DSCs). This entails submitting passport-size photos, identity proof and address proof during the DSC application process.
2. Acquire Director Identification Number (DIN)
Both the promoter and the nominee require a Director Identification Number (DIN), which can be obtained through the official process.
3. Reserve the Company Name
Apply to the Ministry of Corporate Affairs (MCA) for the reservation of your chosen company name. Up to six name options can be submitted, conforming to naming standards and incorporating the term ‘OPC’. MCA usually processes this within 24-72 hours.
4. Application for Incorporation
After name approval, proceed to file an application for incorporation with the MCA. Attach signed copies of the Memorandum of Association (MOA) and Articles of Association (AOA), along with identity proof, address proof, affidavits and the sole promoter’s declaration. Include the nominee director’s consent with Form INC-3.
5. ROC Review and Application Submission
The RoC will review your application and in case any discrepancies are found, your application may be rejected. However, you have the opportunity to rectify errors and resubmit the application for consideration.
Final Thoughts
The concept of a One Person Company (OPC) revolves around solitary ownership, offering a simplified path for entrepreneurs. With only one person as a shareholder in an OPC, the financial obligations remain confined, ensuring limited liability. Also, the OPC retains its unique legal identity, advantageous for various sectors and small-scale ventures. This structure eliminates the complexities of multi-partner collaborations or agreements. By catering to a single individual, OPCs simplify operations, enhance security and offer a viable avenue for those seeking to manage a business independently. This approach works well especially well with micro, small and medium enterprises (MSMEs) acrossurban and rural sectors. Additionally, OPCs can tap into financing from public sector entities and their limited liability principle shields the owner from the company’s debts. Thus, with one person as a shareholder in an OPC, it contribute significantly to the growth and reputation of MSMEs while offering a secure and simplified business framework.
