A new concept has been introduced in the Company’s Act 2013, about the One Person Company (OPC). In a Private Company, a minimum of 2 Directors and 2 Members are required whereas in a Public Company, a minimum of 3 Directors and a minimum of 7 members.
One Person Company (OPC) is a company incorporated by a single person. Before the enforcement of the Companies Act, 2013, a single person could not establish a company. If an individual wanted to establish his business, he/she could opt only for a sole proprietorship as there had to be a minimum of two directors and two members to establish a company.
As per Section 2(62) of the Company’s Act 2013, a company can be formed with just 1 Director and 1 member. It is a form of a company where the compliance requirements are lesser than that of a private company.
The Companies Act, 2013 provides that an individual can form a company with one single member and one director. The director and member can be the same person. Thus, one person company means one individual who may be a resident or NRI can incorporate his/her business that has the features of a company and the benefits of a sole proprietorship.
Advantages Of OPC
The OPC receives a separate legal entity status from the member. The separate legal entity of the OPC gives protection to the single individual who has incorporated it. The liability of the member is limited to his/her shares, and he/she is not personally liable for the loss of the company. Thus, the creditors can sue the OPC and not the member or director.
Easy to obtain funds
Since OPC is a private company, it is easy to go for fundraising through venture capitals, angel investors, incubators etc. The Banks and the Financial Institutions prefer to grant loans to a company rather than a proprietorship firm. Thus, it becomes easy to obtain funds.
The Companies Act, 2013 provides certain exemptions to the OPC with relation to compliances. The OPC need not prepare the cash flow statement. The company secretary need not sign the books of accounts and annual returns and be signed only by the director.
Easy to manage
Since a single person can establish and run the OPC, it becomes easy to manage its affairs. It is easy to make decisions, and the decision-making process is quick. The ordinary and special resolutions can be passed by the member easily by entering them into the minute book and signed by the sole member. Thus, running and managing the company is easy as there won’t be any conflict or delay within the company.
The OPC has the feature of perpetual succession even when there is only one member. While incorporating the OPC, the single-member needs to appoint a nominee. Upon the member’s death, the nominee will run the company in the member’s place.
Disadvantages Of OPC
Suitable for only small business
OPC is suitable for small business structure. The maximum number of members the OPC can have is one at all times. More members or shareholders cannot be added to OPC to raise further capital. Thus, with the expansion and growth of the business, more members cannot be added.
Restriction of business activities
The OPC cannot carry out Non-Banking Financial Investment activities, including the investments in securities of anybody corporates. It cannot be converted to a company with charitable objects mentioned under Section 8 of the Companies Act, 2013.
Ownership and management
Since the sole member can also be the director of the company, there will not be a clear distinction between ownership and management. The sole member can take and approve all decisions. The line between ownership and control is blurred, which might result in unethical business practices.
Frequently Asked Questions
Who is eligible to act as a member of an OPC?
Only a natural person who is an Indian citizen and resident in India shall be eligible to act as a member and nominee of an OPC.
A person can be a member of how many OPCs?
A person can be a member of only one OPC.
Is there any tax advantage on forming an OPC?
There is no specific tax advantage to an OPC over any other form. The tax rate, other tax provisions like MAT & Dividend Distribution Tax applies as they apply to any other form of company.
What is the mandatory compliance that an OPC needs to observe?
The basic mandatory compliance comprise:
- At least one Board Meeting in each half of the calendar year and the time gap between the two Board Meetings should not be less than 90 days.
- Maintenance of proper books of accounts.
- Statutory audit of Financial Statements.
- Filing of business income tax returns every year before 30th September.
- Filing of Financial Statements in Form AOC-4 and ROC Annual Return in Form MGT 7.
Who cannot form a One Person Company?
A minor, a foreign citizen, a Non-Resident, and any person incapacitated by contract will not be eligible to become a member.