One Person Company – Introduction, Features & Advantages
September 18, 2019
The Companies Act, 2013 introduced a revolutionary concept, and since then, the idea has changed the way several companies do business. The concept is that of One Person Company (OPC), and it was recommended in 2005, by a committee headed by Dr JJ Irani. The idea of OPCs was genuinely groundbreaking because it helped provide investors with an excellent opportunity to take power into their own hands and gave them several benefits. It gave young entrepreneurs benefits that an ordinary Private Limited company could avail, while, at the same time, providing them with added tax and HR benefits.
Here’s a look at everything you need to know about One Person Companies and why they are so useful.
Concept of One Person Company
As per Section 2(62) of the Companies Act, 2013, a One Person Company is defined as any company with just one member. Section 3 of the Act, also clarifies that an OPC will be considered a Private Company when it comes to legal matters. Hence, all rules which must be held in place for a Private company is also valid for an OPC. The only exception to this rule is that an OPC can be made only by a “Natural Indian” who lives in India can form an OPC. Also, another law states that one particular individual cannot create more than 5 OPCs in his or her name.
Formation and Features
An OPC is created the same way as a private limited company, with the only difference being that it has only one member and is prohibited from inviting members from the public to be a part of it.
Features of an OPC are as follows:
An OPC may be formed as either of the two:
- Limited by Guarantee
- Limited by Shares
- If shares limit the OPC, then it should have an internal capital of at least Rs 1 lakh and should have the power to restrict share transfers. It will also not be allowed to invite people to subscribe to it.
- An OPC must have a legally registered name, under which it operates and the term; One Person Company must be mentioned wherever the name of the company is used.
- An OPC member must nominate another with consent and have this nominee’s name filed to the Registrar of Companies.
- This nominee will run the OPC if the founding member dies or meets with some exceptional circumstances. The member may change the name of the nominee, as and when he or she desires by approaching the Registrar of Companies. If the member dies, while in power, then all the shares and liabilities that the OPC has accumulated, automatically pass onto the nominee.
Exemptions Available for One Person Company
An OPC enjoys several privileges and immunities which Private companies are not eligible to receive. Here’s a look at the exemptions an OPC receives.
- As per Section 92 of The Companies Act, 2013, states that annual returns of an OPC, need to be signed by either the company secretary or the director.
- According to Section 122(1) of The Companies Act, 2013, it is stated that laws mentioned in S.98, S.100 to S.111 will not be applicable to OPCs and hence, the laws that govern General Body Meetings and Executive Meetings need not be followed by them.
- Any resolution made after a meeting needs just to be recorded by the OPC’s member in a record or logbook and this book must be maintained and duly signed by the member as per Section U/s 118.
- An OPC requires only 1 Director to function and can have a maximum of 15. This can be increased further by filing a resolution.
- Compliance regulations for Board Meetings will be met if decisions moved are registered in a minute book which is acknowledged and recorded by the member.
- An OPC should send the Registrar copies of their financial statements with the required documents at least before 180 days have passed after the closing of a fiscal year. These statements need to be attested by the Director or Company Secretary.
- Failure to comply with the rules listed above will result in the One Person Company getting penalized by the Registrar of Companies for an amount between Rs 20,000 and Rs 1 Lakh and a six-month prison term, depending on the severity of the error.
Benefits of an OPC
- Limited Liability – Liability is treated differently in an OPC as it is a separate entity, and so shareholder liability is limited to the payment of subscription money. Hence, the member’s personal assets are not at risk.
- Smooth Succession- As the name of the nominee is made during the creation of the OPC, succession laws are simple. In the event of the death of a member, all the shares and investments of the OPC are handed down to the nominee. There is no need for any lengthy procedure or submission of will as is the case with sole proprietorships.
- Easier Compliances – A One Person Company has more relaxed and less binding compliance regulations. This dramatically reduces paperwork associated with running the company and hence, reduces the load on the HR department.
- Helps in organising the unorganised proprietorship by giving it the same legal status of a private limited company. This provides better banking facilities to such companies. It also helps such companies have better status and recognition with respect to other companies.