One person company

Aditya Sharma UG 17-11

 One person company
• company which has only one person as a member and where legal
and financial liability is restricted to the company only and not to that
person
 Need of opc
• encourage corporatization of micro businesses and entrepreneurship
• We were not first- Europe , UK, single member Limited Liability
Company - limitation of liability
• Irani committee -2004
• Why company but not a company- singularity of shareholder
• Avoid complex legal compliances, generate employment opportunity
• creditors protection
Irani committee report
• potential for diversity in the forms of companies
• enable economic inter-action for wealth creation
• “With increasing use of information technology and computers, the
emergence of the service sector, it is time that the entrepreneurial
capabilities of the people are given an outlet for participation in
economic activity.
• No need of association of persons
• a simpler regime - entrepreneur is not compelled to fritter away his
time, energy and resources on procedural matters
Nature of OPC
• OPC is a hybrid structure - benefits of a sole proprietorship business
and a company
• one person as a member who will act in the capacity of a shareholder
as well as a director- hassles of finding the right kind of co-partner
• a private Company with one member,
• Nominee Director,
• ‘OPC’ to be suffixed
 Features
• only one person as a
member/share holder
• “Naturally-Born" Indian eligible
• Joint-holder of share(s) allowed
• OPC suffix
• name of the nominee in MOA
• written consent of nominee shall
be filed with the Registrar
• nominee should be a natural
person, an Indian citizen, and
resident in India- nominee may be
changed at any time
• paid up share capital is minimum
Rs. 1 Lakh and maximum Rs. 50
Lakh.
• financial statements of an OPC
consist of Profit & Loss Statement,
Balance Sheet and Notes to
Account.
• at least one meeting of the Board
of Directors in each half of a
calendar year
• annual return by CS or director
 Disadvantages
• strictly prohibited to invite public
• Shares not transferable.
• Cannot incorporate more than one OPC
• become the nominee in more than one such company
• nominee can withdraw his consent
• Cannot be converted into a company under section 8
• cannot carry out Non-Banking Financial Investment
• Foreign Companies are not allowed
• Threshold limits of capital and average annual turnover are Rs. 50 Lakh and
Rs. 2 Crore
Process of incorporation
• Obtain Digital Signature Certificate
• Obtain Director Identification Number [DIN]
• Select suitable Company Name, and make an application to the MCA
for availability of name
• Draft [MOA & AOA] and file with ROC
• Payment of Requisite fee
• Scrutiny of documents at Registrar of Companies
• Incorporation from ROC
OPC, Propriotership, company
• proprietorship concern without the ills generally faced by the
proprietors
• Risks limited extent of the value of shares held by such person
• liabilities getting attached to the personal assets
• perpetual succession
• the business head is the decision maker
• Consensus not a question
• act as a director, shareholder and various other positions in the
company
 Continued..
• Several provisions are not applicable of the Companies Act, 2013
• business which is required to be transacted at an AGM- not required
• if there is only one director, there is no such compulsion to conduct
such board meetings as in 173
• Annual return can be signed by CS or director
 Conversion
• share capital exceeds fifty lakh rupees or its average annual turnover
during the relevant period exceeds two crore rupees
• required to convert itself, within six months
• alter its memorandum and articles by passing a resolution to give
effect to the conversion
• give a notice to the Registrar in Form No.INC.5 informing that it has
ceased to be a One Person Company and that it is now required to
convert itself
• converted into a Private or Public company
Challenges
• Requirement to appoint a nominee- selecting a suitable nominee,
obtaining his consent
• nominee also has a choice to withdraw their consent
• a private company can be established with the help of two
individuals- opc will not attract individuals
• Private Companies are allowed to be established by NRIs
• Restrictions with conversion – capital and turnover
• OPC cannot be incorporated as section 8 company
• taxed as a private company + dividend distribution tax
Analysis and conclusion
• Minimal paper work and compliances
• separate legal entity with just one member
• limitations such as, mandatory conversion, Tax burden
• most favourable form of business organization specially for small
entrepreneurs
• Potential to transform the unorganised sector into organised sector.