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Everything You Need To Know About One Person Company

Everything You Need To Know About One Person Company

The concept of One Person Company in India was first introduced in the Companies Act of 2013  to simplify the complex procedures and compliance requirements associated with other types of business models. This type of business concept did not previously exist in the Companies Act before1956. 

As per Section 2(62) of the Companies Act, 2013, a one-person company has only one person as a member. That member is both a shareholder and a board member. The concept of OPC opens up many possibilities for sole proprietors and can also offer advantages like limited partnerships to such businesses. 

Origin of One person company 

The concept of OPC was first introduced in the case of Soloman v. Soloman & Co in the United Kingdom. After this case, numerous countries started adopting the idea of a one-person company. Countries like China, the USA, and Turkey began adopting One person companies as a type of entity. 

In India, this concept was introduced in 2005 by the J.J. Irani Committee. The Committee concluded that with the advent of digitalization and rise in information technology, young entrepreneurs should be provided with a platform to explore their potential and introducing One person company as an entity will facilitate this idea. The primary goal of introducing OPC was to minimize paperwork and compliances for the businesses. People engaged in OPC are provided with a regime that eliminates heavy procedural work. The Committee also suggested certain basis for classification of OPCs, which are as follows:

  1. Based on the Size of the company 
  1. Based on control of members over the company
  1. Based on the liability of the members 
  1. Based on access to the capital 

While the Committee’s report came in 2005, the idea was still not implemented. In 2009, it was given some consideration, and in 2013, with the introduction of the Companies Act, 2013, the concept of OPC became a reality in the corporate world. 

Effect of concept of OPC on entrepreneurs

The introduction of OPC in India through the Companies Act,2013[1] has left a significant impact on the entrepreneurs in India. It has given them a relaxed regime with so many advantages to explore their potential to the fullest. It ensures minimal paperwork, rules and flexibility of conversion into other kinds of entities. However, this concept is still developing in India and has yet to flourish in its complete form.

Features of One person company 

Following are the salient features of One person company:

  • It consists of only one member, which gives that member complete control over the company’s operation.
  • The minimum share capital requirement for OPC is INR 1 lakh.
  • An OPC is considered a private limited company. 
  • An OPC shall nominate a nominee who will become a member and will be entitled to all the shares in case of death or incapacity of the member.
  • The nominee shall be a natural person citizen as well as a resident of India.
  • The founding member of the OPC must be a natural person, citizen and resident of India.
  • If the paid-up capital exceeds Rs 50 lakhs or the average annual turnover exceeds Rs 2 crores in three consecutive years, the OPC will have to convert into a private limited company. 
  • An OPC need not have a cash flow statement. 
  • An OPC must submit an annual report duly signed by the director of the company. 
  • A person cannot become a nominee in multiple OPCs
  • The person becoming a nominee or member should have attained majority, i.e., 18 years or above.
  • An OPC cannot carry out Non-banking investment activities. 
  • To convert into another kind of company, two years should be passed since the date of commencement of such a company. 
  • A person cannot register more than one OPC.
  • An OPC must hold board meetings twice every year. The gap between both meetings must not be less than 90 days.

Advantages of One Person Company 

Following are the advantages provided to an OPC:

  1. Limited liability: An OPC offers limited liability to its members. The member is only liable to the extent of their share in the company. In case of financial distress, the personal assets of the member are not harmed.
  1. Separate legal entity: Upon One Person Company registration, the company attains the status of a separate legal entity. The company has a separate identity and existence in the eyes of the law.
  1. Minimum compliances: An OPC is free from many compliances mandatory for other companies. For example- the OPC is not bound to hold annual general meetings; it does not mandatorily need a cash flow statement etc.
  1. A good option for micro-business: Since an OPC only needs one member to be incorporated as a company, it is a great option for individuals with small businesses to start their company.
  1.  Increases credibility: Since the OPC is a registered company with the Ministry of Corporate Affairs of India, it increases the company’s credibility among investors and consumers in general. 
  1. Perpetual Succession: A registered OPC enjoys perpetual succession, which means that the company will not cease if the member is not there.

Conclusion

A One person company can be incorporated with one member. It provides a bright future for small traders, low-risk entrepreneurs, artisans and other service providers. OPC serves as a starting point for such entrepreneurs to showcase their skills in the global market.

Read our article:Registration Of Private limited Company Under The Companies Act, 2013: An overview

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