By K P C Rao, LLB, FCMA, FCS.,
CMA (USA)., FIPA (Australia)
Practicing Company Secretary
I What is One Person Company (OPC)?
The concept of One Person Company (OPC) has now been introduced in India, through Section 2(62) of Companies Act 2013 thereby enabling Entrepreneur(s) carrying on the business in the Sole-Proprietor form of business to enter into a Corporate Framework. Though this concept is new in India but is already a part of many other countries like China, Australia, Pakistan and UK etc.
According to Section 2(62) of the Companies Act, 2013 ‘One Person Company’ means a company which has only one person as a member. A company formed under one person company may be either:
(a) A company limited by shares or
(b) A company limited by guarantee or
(c) An unlimited company.
One Person Company is a hybrid of Sole-Proprietor and Company form of business, and has been provided with concessional/relaxed requirements under the Act.
II Features of One Person Company (OPC)
(a) Only One Shareholder:
Only a natural person, who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company.
(b) Nominee for the Shareholder:
The Shareholder shall nominate another person who shall become the shareholders in case of death/incapacity of the original shareholder. Such nominee shall give his/her consent and such consent for being appointed as the Nominee for the sole Shareholder. Only a natural person, who is an Indian citizen and resident in India, shall be a nominee for the sole member of a One Person Company.
Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The Company may have a maximum number of 15 directors.
III Terms and Restrictions of One Person Company (OPC)
(a) A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company.
(b) A Minor cannot become member or nominee of the One Person Company or can hold share with beneficial interest.
(c) An OPC cannot be incorporated or converted into a company under Section 8 of the Act. [Company not for Profit].
(d) An OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporate.
(e) An OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond Rs.50 Lakhs or its average annual turnover during the relevant period exceeds Rs.2 Crores i.e., if the Paid-up capital of the Company crosses Rs.50 Lakhs or the average annual turnover during the relevant period exceeds Rs.2 Crores, then the OPC has to invariably file forms with the ROC for conversion in to a Private or Public Company, with in a period of Six Months on breaching the above threshold limits.
IV The Advantages & Disadvantages of Registration of One Person Company (OPC)
(a) Acceptance of One Person Company: In the Indian business environment the joint stock forms of organization or registered organization rules the market and are given high credibility that attracts easier capital availability and high growth. However, one person company will be compared on the same ground as that of Sole proprietor because of its characteristics.
(b) Limited Liability: The most important characteristic of the company form of organization is limited liability. In the concept of OPC, if the limited liability concept is taken seriously, it will be dangerous for investors to invest the fund because it may lead to fraudulent business practices on the other hand if the court comes in between and asks for lifting of corporate veil then it would be useless to form the one person company.
(c) Compliance cost: The main advantage of OPC is limited liability; one main disadvantage would be compliance cost which is of recurring nature. The compliance cost of a company is higher than that of a proprietorship form. A proprietorship form is easy to form and easy to wind up without much compliance cost or procedure.
(d) Taxation of One Person Company: A one person company would be taxed at same rates as that of all other companies. This is also a disadvantage as compared to sole proprietorship business as they enjoy the tax rates applicable to individuals. An OPC will have to sacrifice all the advantages which a sole proprietorship business enjoys over the company.
The concept of OPC is expected to give big impetus to Corporatization in India. The only care to be taken is that there should be no regulatory mess ups like the ones which hampered the growth of Limited Liability Partnerships in India.