Introduction of One Person Company
One Person Company (OPC) is a superior and enhanced version of a sole proprietorship firm. For carrying out medium sized businesses, One Person Company becomes a prominent type of business structure.
In this business structure, the owner of the company is the shareholder who has complete control over the company. Along with that the liability of the shareholder is limited which helps him to prevent his personal assets. Like a private limited company, OPC can also appoint a different individual for the position of the director for the management of his company.
Difference between Sole Proprietorship firm and One Person Company
A business which is owned, led, and governed by one person is known as sole proprietorship. As this type of business is very easy to start, it attracts more investors to start sole proprietorship.
The owner of the business is eligible to enjoy the entire profit of the business but on the other hand he or she is also entitled for all the losses of the business. Like if any creditors are entitled to receive money from the sole proprietorship, they can sell the personal assets of the owner to clear their debts.
Also, as the owner and business are not different legal entities, the business is discontinued if the owner is deceased.
All the difficulties and issues faced by the sole proprietorship are eliminated in the case of One Person Company (OPC) business type and provides lots of benefits to the businessmen, small traders, and entrepreneurs.
The cost of registration and maintenance of One Person company is very minimal. One person Company business type acts as a separate legal entity with the feature of perpetual succession along with the benefit of limited liability.
A person can become a shareholder cum director and register as a One Person Company (OPC). And in case of One Person company, it is mandatory to appoint a nominee. The nominee should be a resident of India.
In the event of the death of the owner of the One Person company, the nominee becomes the owner of the company and handles the affairs and administration of the company.
Incorporation of a One Person company is a very time-consuming process and involves lots of paperwork. Owner needs to pay the required fees to the ROC for registration of the company and needs to appoint a company secretary to receive his services in the form of drafting and signing of the required documents for incorporation of a company. In the case of forming a sole proprietorship firm the above procedures are not needed.
The finest part of incorporating a One Person Company is that it helps in obtaining Brand image and corporate recognition. It becomes the main reason for an investor to start a One Person Company.
Advantages of One Person Company over the Sole Proprietorship
- Limited liability and Separate Legal Identity: Registration of a business as a One Person Company (OPC) gets a separate and distinct legal identity which helps the owner to enjoy the benefit of limited liability to the extent of his/ her own share in the company.
- Opens door for business opportunity: Most of the large sized organisations prefer to do business with the companies rather than sole proprietorship firms. Registration of a One Person company is the same as that of a private company and as the private company is the trustworthy form of business organisation, it helps the One Person company to raise the funds easily. It helps the suppliers and customers of the business to build confidence in the company.
- Manageable Structure: As only one member is required to start a One Person Company, It is very easy to manage the structure of the business. Conducting an Annual general meeting is not required in this type of business. The decision-making process is very easy and quick as there is only one person or authority who is responsible to make the necessary decision for the company.
- Structure like a private company: The structure of the One Person Company is the same as the private limited company which makes it organized giving the benefit of limited liability. The benefit of the organized structure is not provided by the sole proprietorship firm.
- Ease in availing loan facility: Banks and other financial institutions give preference to the company rather than propitiatory firms in lending money. So, converting the sole proprietorship firm into a One Person company helps them to get the loans easily from the banks and other financial institutions.
- Filing of Annual Return: The mandatory requirement of getting the annual return signed by the company Secretary is not required in case of One Person Company. In OPC, it should be signed by the director.
Conversion of Process from Sole proprietorship to One Person Company
Two people are required to register for an OPC, One of which is the owner/ director, and the second person will be the nominee. Following are the steps for converting a sole proprietorship into a One Person company:
- Obtain Director Identification Number (DIN): The first step in converting is that the owner needs to apply for Director Identification Number.
- Obtain Digital Signature Certificate (DSC): The Owner/ director needs to obtain a digital signature certificate and the same must be submitted to the Registrar of Company.
- Application for approval of name: The owner needs to check whether the chosen name for his company is available or not. The chosen name should be in accordance with the compliance of the guidance given by the Ministry of Corporate Affairs. The owner can choose six names and submit it by giving his priority based on which the name is allotted in accordance with the availability. The name of the company should be of at least 2 words, One which depicts the name of the company and the other shows the nature of the business.
- Drafting of Memorandum of Association (MOA) and Article of Association (AOA): After the approval of the name of the company, the draft of the MOA and AOA of the company along with various other required documents needs to be prepared.
- Filing of E-forms: Once the Memorandum and Article of Association is drafted, an application needs to be filed for registration of the company and the MOA, AOA and all the other required documents need to be submitted with the Registrar of the Company.
- Issuance of the Certificate of Incorporation: After the submission of all the documents, the Registrar of the Company (ROC) verifies all the documents and after scrutinizing all the documents and successful validation, ROC issues the Certificate of Incorporation to the owner of the Company.
- Apply for the TAN and PAN of the company: After the incorporation of the company, it needs to apply for the TAN (Tax Deduction and Collection Account Number) and PAN for the company.
Documents required in converting sole proprietorship firm into a One Person Company:
- Pan Card of the director and shareholder of the company. And if they are of foreign nationality, then they need to submit a copy of the valid passport.
- Directors and shareholders need to submit a valid identity proof like Voter ID, Driving license or Passport.
- Director and shareholder should have a valid address proof in form of Electricity bill, telephone bill, or latest statement of bank account.
- Director and shareholder’s passport size photograph.
- Address proof like Rent agreement, telephone bill or electricity bill of the registered office address.
- No Objection Certificate (NOC) from the owner of the office property.
- Approval from the nominee must be in writing.
- Latest Income tax return copy of the owner.
- The One Person Company is required to have authorized capital of minimum Rs. 1 lac.
- Transferring of shares to any other person is prohibited in case of One Person Company.
- An individual can only have a single One Person Company at one time.
- An OPC is restricted from inviting public to subscribe its securities.
- An OPC needs to inform the Registrar about all the contract it is entering into along with its single member within 15 days from the date of contract or agreement.
- It is mandatory for the OPC to file form ADT 1.
- Till the time the OPC is meeting all the annual compliance after the incorporation of the company, it will be active and in existence. The company will set as a dormant company if in case the annual compliance is not met. The registrar can also strike off the company which can be resuscitate only for a time being of up-to twenty years.
- Nominee is appointed in the case of One Person Company to retain its characteristic of perpetuity which means continuation of the business in the event of the death of the owner. Any person can be appointed as the nominee subject to he or she should have a valid Pan Card in her or his name.
- The nominee of the company can anytime be changed by giving prior intimation to the Registrar of the Company.
- A One Person company can become a member of the other private limited company as there are no restrictions given in the Act.
- A One Person company after a period of 2 years from the incorporation date can easily be converted into a public limited company or a private limited company.
- Registration of a One Person Company has become an online process. So, the person is not required to be physically present at the time of registration.
- The One Person Company need to file the form INC- 4 in case of the death of its member, disqualification of contract or any kind of change in terms of ownership of the business. And the details of the new user or member need to be provided in the same form.
- To fasten the process of the registration of One Person Company, the promoter should ensure that the chosen name for the company is unique. Along with that all the necessary documents required in relations to the nominee, subscriber, director, and the registered office is proper and accurate.