One Person Company: Everything you need to know
By Gabriella Ruhil December 30, 2015
An OPC (One Person Company) as the name suggests is a company formed by a single person i.e. a company which has only one person as a member. The concept was introduced in the Companies Act of 2013. The objective behind introducing the concept of OPC was to provide a legal regime to small business owners, sole proprietor etcetera and provide them with the opportunity to own a limited liability business which in turn will help in the growth of the economy and be a step towards bringing Indian business laws at par with that of other developed economies such as UK, US and China etcetera. As on 1 April 2014, a single person can incorporate a company in India.
An OPC gives a single person (known as the ‘promoter’) full control over a company while at the same time providing him/her with the advantage of limited liability. As per the Companies Act, 1956 the easiest company to be incorporated was a private company which required a minimum of two persons but with the enforcement of Companies Act, 2013, forming a company has become even more simpler with even a single person being eligible to establish a company.
Benefits of OPC:
There are several advantages of an OPC in comparison to other companies, some of which have been enlisted below:
- An OPC requires minimum paper work as compared with other companies, for example, an OPC is not required to file audited statement of accounts with the MCA (Ministry of Corporate Affairs)
- Only one member is required to start the company.
- OPC has perpetual existence i.e. the company will continue to exist even after the death of the promoter (or member). This is because the OPC has a separate legal identity from that of its promoter.
- Limited liability is another important feature of an OPC i.e. the liability of the owner is limited to the investment made in the business and cannot extend to personal assets of the promoter. It entails lower risk for business as compared to what would have been faced as a sole proprietorship.
- Only one director is required and the sole shareholder can be the sole director.
- It requires minimum compliance in comparison with private or public company, e.g. there is no need to hold annual general meeting, it poses lower risk for business as would have been faced as a sole proprietorship, only one director is sufficient, and there is relaxation in filing and signing of financial statements.
- Any OPC falling under priority sector lending can get loans faster and at better rates, leading to faster growth for the company.
- As a registered legal entity start-up, OPC’s can easily get funding from financial institutions e.g. venture capitalists
- It is the most favorable form of business available for start-ups.
- An OPC also grants the possibility to the promoter to convert in other types of companies as the OPC develops and grows.
Types of OPC:
Even though the Companies Act of 2013 provides for two forms of company -limited and unlimited company but for obvious reasons an OPC can only be a limited company, which can be of two types -
- Limited by shares-It is a company in which the liability of the members (or in this case shareholders) of the company is limited to the amount due for their shares. This is limited in the Memorandum of Association of the company. But being a limited company doesn’t mean that the liability of the company is liability, it just means the liability of its members is limited and that of company is unlimited
- Limited by guarantee-In this type of company the liability of its members is limited to the amount each member has undertaken to contribute to the aspects of company in event of it being wound up and this is limited by the Memorandum of Association.
Who is Eligible to Incorporate an OPC
An OPC can be incorporated by any individual who fulfills the following conditions:
- The person incorporating the OPC, must be a natural person and thus by implication it cannot be formed by a juristic person.
- The person must be an Indian citizen and a resident of India
- Residency requirement- The person has to stay in India for not less than 182 days during the period immediately preceding the relevant financial year.
- The person must not have opened another OPC or be a nominee in more than one OPC.
- Thus the following kinds of persons cannot incorporate an OPC –
- Foreign citizen
- Non-resident Indian
- Person incapacitated to contract
- Artificial person e.g., any type of company incorporated under Companies Act,2013
Other Important Points that need to be borne in mind for forming an OPC:
- Only an eligible person can open an OPC.
- An OPC can be registered as a private company only.
- It must have a minimum authorized share capital of Rs. 1,00,000/- (Rupees One lakh).
- There has to be restriction on transfer of shares.
- An OPC is not allowed to give invitation to public for subscription of securities of the company.
Steps to Incorporate an OPC:
- DSC and DIN: Before starting the process of incorporation of the company it is advisable that a Digital Signature Certificate (DSC) and Director Identification Number (DIN) are obtained. This helps because these two can be used while filing the necessary forms of MCA and for payment of requisite fee on behalf of the company.
- Name: A suitable name for the One Person Company must be decided and Form INC-1 must be filed with the ROC for availability and registration of name. Some of the things to be kept in mind when choosing a name are :
- Last word in the name must be “Limited”; or
- The term “OPC” or “one person company” has to present in the name e.g. ABC Private Limited (OPC) is a valid name for a one person company;
- Name cannot be similar to or same as the name of an existing company;
- The name should not be against the law; or
- Either the Central Government or the ROC (Registrar of Company) must not deem the name undesirable, but this usually happens after an application is filed with ROC and is consequently rejected on grounds of being undesirable; or
- The name should not give an indication that the company is in any manner connected or affiliated with the Central Government, State Government or any local authority.
An important thing to be remembered while choosing the name of a company is that name and brand name of a company can and are mostly different and if there is a separate brand name then it will also have to be trademarked.
- Filing of forms: Within 60 days of filing for and getting approval of availability of name, the person forming the OPC is required to file Form INC-2 with the ROC within whose jurisdiction the registered office of the company will be situated. Along with the form the following documents should be attached :-
- Memorandum of Association (or MOA)
- Articles of Association(AOA)
- Proof of identity of the member and nominee.
- Residential proof of the member and nominee.
- Copy of PAN Card of the member and nominee.
- Consent of Nominee in Form INC 3.
- Affidavit from the subscriber and first Director to the memorandum in Form INC-9.
- Fees: Payment of fee has to be according to the Companies Rule. Furthermore the company is also required to pay stamp duty as per the laws of the State in which the registered office of the company is located.
- Approval: After scrutiny if all the requirements are met then the ROC will issue a Certificate of Incorporation/ and thereafter the company can commence business.
Under the Companies Act of 2013, a member incorporating a company is required by law to nominate another person who in the event of subscriber’s (i.e. the person who incorporated OPC) death or his incapacity to contract will become the member/owner of the OPC. The person has to give his consent for the same (which he can later withdraw) which is also filed with ROC. At the time of becoming a member this nominee will also have to comply with all rules and regulations related to eligibility of becoming a member of OPC.
Drawbacks of an OPC:
Although an OPC can pride itself of guaranteeing several advantages to anyone willing to incorporate the same, it would not be wrong to contend that it too suffers from a fair share of drawbacks. Some of the drawbacks of an OPC are as follows:
- One person is not allowed to be a member or nominee of more than one OPC.
- An OPC is not allowed to be in the form of an unlimited company.
- An OPC is taxed at flat rate of 30 % as compared to tax slab for individuals.
- OPC cannot be incorporated under Section 8 of Companies Act 2013. OPC is not even allowed to convert to such a company.
- An OPC is not allowed to carry out Non-Banking Financial Investment activities. This includes investing in securities of any body corporate.
- An OPC cannot convert into any kind of company unless the following conditions are met –
- The OPC must have been in existence for a minimum of two years; or
- It must have a paid up share capital which has increased beyond Rs. 50,00,000/- (rupees fifty lakh); or
- Its average turnover must have exceeded Rs. 2,00,00,000/- (rupees two crore).
The concept of OPC is novel and previously has been unheard of concept in India. Even now two years after its introduction it is an unfamiliar concept for Indian entrepreneurs. Enacted with the aim of providing easier business formation norms and lesser paper work for businesses; OPC’s help in providing a safe and secure platform for budding businesses especially weavers, traders, artisans, small to mid-level entrepreneurs. It gives them the security of limited liability and the opportunity to secure lending from venture capitalists, foreign investors, banks etc. Thus, it is a unique concept which will help in providing legal protection to the unorganized Indian businesses. With the new ‘Make in India’ and ‘Ease of Business’ policies of the new government the future seems promising, but what remains to be seen is the government regulations and clarifications in this regard.
Picture Courtesy: https://www.google.co.in/search?q=one+person+company&espv=2&biw=1366&bih=667&source=lnms&tbm=isch&sa=X&ved=0CAcQ_AUoAmoVChMI69uvk4uhyAIV0x6OCh1RDQdL#imgrc=WkR-KRwxRVV8CM%3A
 Section 2(62) Companies Act 2013
 Section 3(1) (c) Companies Act 2013
 A complete list of exemptions for OPC is available at-http://taxguru.in/company-law/opc-person-company-big.html
 Section 98, S 100 to 111 Companies Act, 2013
 Section 149 Companies Act 2013
 Section 134 Companies Act 2013
 Priority Sector Lending is a special program of Reserve Bank of India as per which banks are directed to provide lending to certain sectors which have been identified as special sectors and need special focus. See - https://rbi.org.in/Scripts/FAQView.aspx?Id=87
One such sector which will benefit majorly from establishing an OPC is small and medium entreprises (SMEs).this is because being a legal entity helps reduce the paperwork and also reduces risks thereby making the loan process easier and thus banks are more inclined to give loans to such businesses instead of business which are sole proprietorship or partnership.
Master Circular - Priority Sector Lending , RBI/2013-14/107 RPCD.CO.Plan.BC 9 /04.09.01/2013-14
 Venture capitalists unlike banks are more open to fund startups and also provide them with invaluable guidance during the startup’s expansion. See: https://hbr.org/1998/11/how-venture-capital-works
 Section 3(2) Companies Act 2013
 Section 3(2) (a) Companies Act 2013
 Section 3(2) (b) Companies Act 2013
 Rule 3 of Companies (Incorporation) Rules,2014
 Rule 3(2) of Companies (Incorporation) Rules,2014
 Section 10 and 11 of The Indian Contract Act, 1872
Authorized share capital of a company is the maximum amount of share capital that a company is authorized to issue as per amount given in its MOA and AOA
 Sec 2 (68) (iii) of Companies Act 2013
The DSC is an instrument issued by certifying authorities (TCS and n-Code are two of them) by which you can sign electronic documents
Director Identification Number (DIN) is a unique identification number for an existing director or a person intending to become one.
 Section 4 (1) (a) Companies Act 2013
 To ensure that such conflict doesn’t arise the Ministry of Corporate Affairs provide services for checking availability of name, available at - http://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=16
 Section 4(2) Companies Act 2013
 A list of words which will be constitute as undesirable name has been provided in Rule 8 of Companies (Incorporation) Rules,2014
 Section 4 (3)Companies Act 2013
 Availability of brand name can be checked at- http://ipindiaservices.gov.in/tmrpublicsearch/frmmain.aspx
 The MOA of a company provides basic details of the company, its object for incorporation and the division of shares among its members. The format for MOA of different companies has been given in Schedule 1, Table A-E of the Companies Act 2013. In case of an OPC the MOA contains the name of the nominee also.
 AOA of a company contains the rules and regulation for management of the company and format for the same is given in Schedule 1, Table F-J of the Companies Act 2013
Companies (Registration Offices and Fees) Rules, 2014 and also see http://www.mca.gov.in/MCA21/dca/help/instructionkit/NCA/Form_INC-2_help.pdf
 Rule 4 of Companies (Incorporation) Rules,2014
Section 8 – Formation of companies with charitable objects,etc.
 Rule 3(5) of Companies (Incorporation) Rules,2014
 Rule 3(6) of Companies (Incorporation) Rules,2014
 Rule 3(7) of Companies (Incorporation) Rules,2014
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