All About One Person Company in India

ALL ABOUT ONE PERSON COMPANY

What is One Person Company?

The Companies Act, 2013 dictates that any individual who is the sole owner or founder can successfully start a company under “One Person Company” or OPC. According to this Act, only a single entity can function as the shareholder and as the director. Earlier, the Companies Act, 1956 demanded that a private limited company should comprise of at least two shareholders and two directors. However, the Companies Act, 2013 sanctioned by passed by both the houses of the Parliament has introduced OPC to encourage self-employment with in the legal premises. However, only under two situations can an OPC be converted into Private limited company –

1. Voluntary Conversion- Conversion in not less than two years from its date of merger.
2. Compulsory Conversion- Conversion when an OPC has more than Rs.50 lakhs paid-up capital equal or when the company’s annual turnover exceeds 2 Crore.

Characteristics of OPC

OPC demands one individual to disclose their name in the Register of members of the company and that individual should have shares of the company in their name. This name should be present in the records of the depository. Moreover, a nominee should be stated, who will also become a member of the company. To explain it in simplistic terms-

1. An entity with no alliance of person, individuals, or company, or any other party for that matter may resort to OPC provided that the individual is a resident of India and/or stayed in India for 182 days.
2. Under no circumstances can an individual amalgamate more than one OPC or choose to be a nominee of more than one OPC.
3. The OPC member has the absolute right to change the nominee at any moment after a proper suggestion from the Registrar.
4. Under the name of the company, ‘One Person Company’ should be put in brackets and then it ought to be affixed, printed or engraved positively.
5. In order to maintain the status of OPC the minimum paid up capital should be 1,00,000 and annual average turnover should reach Rs. 2 crores in the next three years.
6. In the case of an OPC, there is no authorization to summon any meeting such as board meetings or any other general meetings. In addition, there is a relaxation on reporting to the Registrar of Companies for an OPC.
7. Whereas, an OPC necessitate a minimum of one director but does not restrain recruitment of more than one director. A maximum of fifteen directors can be recruited under OPC.
8. The other directors are appointed in the General Meeting. The OPC invests its power in the Board of Director to appoint an additional director. As a result, if a person is not nominated at a general meeting, the Board of Director may appoint the additional director in the general meeting that is held annually.
9. When more than one director is involved, in any case, one meeting of the Board of Directors shall be conducted every six months. Moreover, the interval between the two meetings by no means should be less than ninety days in accordance with the Companies Act, 2013.
10. OPC, however, is not permitted to Non-Banking Financial Institutions.
11. One director is responsible for signing the financial statement. Whereas, the annual return can be signed by the company secretary, or by the director of the OPC during the absence of company secretary.

How is OPC beneficial?

It is not possible to keep an eye on every intricate detail while running a business. In such a scenario, One Person Company acts as a savior and helps the entrepreneur in various ways :

1. It is not likely for the entrepreneur to secure his personal assets if due to certain circumstances, his endeavor fails or faces any misfortune. However, with One Person Company, the liability of the shareholder is limited to the shareholding. This suggests that if due to certain factors the company is under debt, it will not affect the personal savings of the entrepreneur at all. Such a short fall will be considered completely business in nature.
2. One Person Company is a business agreement comprising of a Private Limited Structure encouraging suppliers as well as customers the motivation required for running a business. When it comes to sizeable organizations, they prefer private limited companies instead of proprietorship firms to carry out business. A business structure that is private in nature, obtains impressive and eminent work force and which is then maintained by allotting corporate designations, such as directorship. However, proprietorship firms cannot use such designations.
3. Startup Entrepreneurs benefit immensely from OPC. It is convenient to build a business model, develop marketable product approach and on gaining considerable funding, the startup company can be transformed to a Private limited company with multiple shareholders.
4. Various banks, as well as financial institutions, are more inclined to give loans to private limited companies rather than proprietary firms.
5. A company is eligible to develop a contract with the company’s shareholder or directors.
6. OPC does not demand to hold Annual General Meeting(AGM).

Loopholes in OPC

1. In the case of emergencies, OPC disallows taking loans from other due to its private limited structure.
2. Due to a limited number of shareholders, the assets of the OPC includes the available funds possesses by the owner of OPC.
3. Only one nominee can be appointed in OPC. This, however, may not settle well with the other family members of the OPC owner.
4. It is highly unlikely for a foreign company to integrate their subsidiaries with OPC’s. The primary reason here is that OPC has only one member, with one nominee.
5. Banks are really cynical to provide loans to OPCs.
6. One Person Company cannot be incorporated by NRI’s.

The actuality is that OPC provides sample prospects to established entrepreneurs as well as start-up owners, who are willing to take part in business and establish an organized business. Thus, it is important that young entrepreneurs learn “all about One Person Company”, as it will administer the business with flexibility while benefiting the company.