Everything you need to know on One Person Company (OPC)

Introduction

A new concept has been introduced in the Companies Act 2013, about One Person Company (OPC), a company incorporated by a single person.

In a Private Company, a minimum of 2 Directors and 2 Members are required and in a Public Company, a minimum of 3 Directors and a minimum of 7 Members. A single person could not incorporate a Company previously. But now they can.

OPC will bring the unorganised sector of Sole-proprietorship into the organised version of a private limited company. Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The organised version of OPC will open the avenues for more favourable banking facilities. Sole Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then his liability is limited.

Definition

The concept of an OPC is not new to the world. Over the years, this concept has been legally recognized in the UK (2006), USA (Limited Liability Company in US), China (2005), Singapore (2004), Turkey (2012), UAE and Pakistan (2003), among others.

The concept of OPC has been introduced with the following characteristics: –

1. One Person Company (OPC) which requires only one person as a subscriber to form a company and such a company will be treated under the Act as a private company.
2. A person, who registers one-person company, is not eligible to incorporate more than one one-person company
3. The memorandum of OPC must indicate the name of a person (other than the subscriber), with his prior written consent in the prescribed form, who will become a member of the OPC when the subscriber dies or is incapacitated to contract.
4. The nominee to the memorandum of one person company shall not be eligible to become a nominee for more than one such company.

Advantages of One Person Company

One of the significant questions to be undertaken while dealing with the concept of one person Company is that- why would a person prefer a company to a proprietorship? Providing an answer to this question it can be said that the very rationale behind the One Person Company is to provide all the benefits of the Company while functioning as a sole proprietor at the same time. The advantages of the One Person Company can be listed as under:

1. Legal Identity– One Person Company is known to have a separate legal identity from that of its shareholders, which means the company and the shareholders act as two different identities in all possible cases.
2. Sole Decision Maker– In the One Person Company there exists only one decision-marker. Hence, no shareholder meeting consensus or majority opinions are taken into consideration, while the only member shareholder meeting is held once every 6 months at a gap of at least 90 days between two meetings. The sole idea which the One Person Company tries to uphold is the personal commitment to the business.
3. Independent Corporate Existence– The added advantage which the One Person Company has is the separate independent identity from that of its director shareholders and director.
4. Limited Liability– One Person Company limits the liability of Entrepreneurship. Limited Liability is considered to be the most prized advantage possessed by the One Person Company. President Eliot of Harvard once considered the limited liability of One Person Company as the most precious characteristic of the company, and it was in turn regarded that the members come and go but the company continue to remain as a separate legal entity. If the business is unable to pay its liabilities, the individual has to pay such liabilities off in the case of sole proprietorship; and the individual is not responsible for such liabilities in the case of a one-person company. An OPC gives the advantage of limited liability to entrepreneurs whereby the liability of the member will be limited to the unpaid subscription money. This benefit is not available in case of a sole proprietorship. Thus, OPC allows an individual to take risks without risking his/her personal assets”.
5. Legal Status - One Person Company is a Private Limited Structure; this is the most popular business structure in the world. Gives suppliers and customers a sense of confidence in business. Large organisations prefer to deal with private limited companies instead of proprietorship firms. A regulated business structure enjoys corporate status in society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, ex. CEO, CFO, Director etc.. These designations cannot be used by proprietorship firms.
6. Adequate Safeguard - In case of death/disability of the sole person should be provided through appointment of another individual as nominee director. On the demise of the original director, the nominee director will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.
7. Bank Facilities - Banking and financial institutions prefer to lend money to a Company rather than proprietary firms. In most of the situations Banks insist that the entrepreneurs convert their firm into a Private Limited company before sanctioning funds. So, it is better to register your start-up as a One Person private limited rather than proprietary firm. An OPC being an incorporated entity will also have the feature of perpetual succession and will make it easier for entrepreneurs to raise capital for business. The OPC is an artificial entity distinct from its owner. Creditors should therefore be warned that their claims against the business cannot be demanded from the owner personally.
8. Tax Flexibility - In an OPC, it is possible for a company to make a valid contract with its shareholder or directors. This means as a director you can receive remuneration, as a Lessor you can receive rent, as a creditor you can lend money to your own company and earn interest. Directors’ remuneration, rent and interest are deductible expenses which ultimately bring down taxable income of your business.

Disadvantages of One Person Company

1. One-person Company can have minimum or maximum no. of 1 Member. A minor is not be eligible to become a member or nominee of the One Person Company nor can hold share any beneficial interest.
2. Only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company.
3. One Person Company cannot carry out Non – Banking Financial Investment activities including investment in securities of anybody corporates.
4. One Person Company cannot be incorporated or converted into a company under Section 8 of the Act.
5. A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company.
6. Requirement to appoint a nominee for incorporating a One Person Company

Conclusion

This new concept can bring people making up companies to generate profits, leaving the responsibility to the company and wash their hands of any responsibility. Hence, it is safe to say that India is moving towards promoting entrepreneurship and this is one of the steps in the process.