Exclusivity in Ownership: One-person Company

A one-person company (OPC) is managed by a single member (i.e., shareholder of the company). This single director is responsible for the functioning of the company, and his liability only extends to the amount of money unpaid on the subscription of shares.

An OPC is a distinct legal entity. The shareholder of this company is a subscriber to the company’s memorandum of association.

Although an OPC may appear to be sole proprietorship, they are both different. As a distinct entity, similar to a private company, an OPC can draw all the benefits of a private company while a sole proprietorship and does not have any separate legal existence.

Definition of an OPC

The Companies Act, 2013 Section 2(62) lays down the definition of an OPC.

Section 3 of the companies act laid down the requirements for incorporating such a company and stated an OPC as a private company.

According to the sub-section (1) clause [c] of the Companies Act 2013, an OPC must consist of a minimum of one person as a member of the company at the time of incorporation of the company for any lawful purpose.

According to Section 149(b) of the act, an OPC can have a maximum of 15 directors.

Features of an OPC

An OPC has the following features:

• An OPC is termed as a private company as per Section 3(1)(c) of the Companies Act, 2013.
• An OPC must have a minimum and maximum of one shareholder or director of the company.
• At the time of incorporation, the single member of the company should appoint a nominee. This nominee will be liable to manage the company’s affairs on account of the sole member’s death or incapacity to contract.
• As per Section 149(b) of the act provisions, an OPC can have up to 15 directors.
• There is no least amount of paid-up capital required for OPCs.

OPC Registration Procedure in India

Requirements for OPC registration

• Minimum and maximum of one member.
• A nominee for the company should be appointed to be a member in case of subscribers death or incapacity to contract.
• Consent of the nominee should be obtained in Form INC-3.
• The selection of the name of the OPC should be based on the provisions of the Companies (Incorporation Rules) 2014.
• Digital signature certificate (DSC) of the proposed director.
• Address proof of the registered office of the OPC.

Process of registration of an OPC in India

1. Apply for DSC

   The first step is to place an application for obtaining the DSC of the proposed director by submitting valid ID proofs, email, and contact.

2. Apply for DIN

   When the DSC is obtained, the proposed director should apply for the Director Identification Number (DIN) under the SPICe Form, including the name and the address proof of the director.

3. Name Approval Application

   The third step is to obtain the company’s name by applying for it using the SPICe form or INC-32 form.

   That name of the company should not match with any existing name of any other company, trademark, or violate any other intellectual property rights.

   If the proposed name is rejected, another form can be submitted for obtaining any other name. The ministry approves these names of the company of corporate affairs.

Documents required for OPC

The following documents should be submitted to the registrar of companies:

• The Memorandum of Association (MoA) states the objectives or purpose of the company.
• The Articles of the Association (AoA) states the rules and by-laws on which the company’s operation is based.
• The nominee’s consent is a requisite and must be entered in Form INC–3 attached with his/her PAN card and Aadhar card.
• Address proof of the registered office of the proposed company with the proof of ownership and a no objection certificate (NOC) from the owner.
• Consent and declaration of the proposed director in Form INC -9 and DIR–2, respectively.
• A declaration stating that all the required compliances have been satisfied

Filing of Forms With MCA

These documents should be attached with the SPICe form, including the DSC, MOA, and AOA of the director.

The PAN and TAN are generated at the time of incorporation of the Company. Separate applications need not be filed to obtain PAN and TAN.

Issue of the Certificate of Incorporation

On verifying the documents, if the registrar finds all the documents correct to its knowledge and compliances are made, he issues a certificate of incorporation of that one-person company.

Advantages of OPC

Legal entity

An OPC has the status of a separate legal entity distinct from its member to protect the company member from any form of attachment of his personal property.

The member’s liability is limited to the amount that remains unpaid on his shares and is not liable for the company’s loss.

Thus, in case of failures to satisfy the creditor’s debt, the creditors can sue the company and not its member or shareholder.

Obtaining funds

An OPC is considered a private company, so the trust of creditors or inventors in a private company is more than a sole proprietorship firm.

An OPC can easily obtain funds in a private company because of its registration with MCA and market growth perspective that cannot be found at the same level in a proprietorship firm.

Compliances

An OPC has a certain exemption concerning the compliance that should be maintained by a private company.

The OPC is exempted from preparing the cash flow statement for each financial year.

The company secretary signing the books of accounts is not a requisite, and the director can only sign annual returns.

Easy incorporation

Incorporating an OPC is easier than that of other company types. The minimum number of directors or members required at its incorporation is only one, including one nominee.

Minimum paid-up capital is not requisite.

Easy to manage

Managing the affairs of an OPC is feasible because only a single member is required to manage the company. The decision-making process is prompt, and ordinary and special resolutions can be passed easily without much hassle. The management is prompt because the decision-making and authorisation require the approval of only a single member.

Perpetual succession

An OPC has succession till perpetuity even after having only one member as its director. IN case of death of the sole member, the nominee appointed before the company’s incorporation is obliged to manage the company and its affairs, and this process goes on and on.

An OPC has a distinct legal status created by law, so the death, insolvency, or retirement of its members does not affect the company’s existence.

Disadvantages of an OPC

Suitable for only small business

The maximum number of members the OPC can have is one at all times, which may result in management of the company a hectic process.

The share capital of the company cannot increase its valuation by adding more members. Thus, the expansion and growth of the business draws the business towards a risky pedestal.

Restriction of business activities

The OPC cannot indulge in non-banking financial investment activities. In simple terms, it cannot initiate an NBFC business.

An OPC cannot invest in the securities of other companies.

An OPC cannot be converted into a Section 8 company, i.e., a company with charitable objects, as per the Companies Act, 2013.

Ownership and management

The ownership and management of the company cannot be segregated. The hierarchy line is not clear as the sole member can be both the director and the member of the company. The sole member can make all the decisions of the company.

A wrong decision due to the single-person decision-making process of a single person can result in catastrophic failure of the company.

Difference between OPCs and sole proprietorships

• An OPC is a separate legal entity with limited liability of its members in case the company suffers loss, whereas in a sole proprietorship, the business and the shareholders or members are considered a single entity with ‘unlimited liability’. If the business suffers loss and the company’s assets are not sufficient to pay debts, then the perusal property of the partners can be attached in such a case to clear debts.
• Because an OPC is a Private Limited Company, it is subjected to taxation as per the provisions of Income Tax Act 1961, whereas a sole proprietorship firm is treated as a single entity. Therefore, the income of the firm is considered the income of the individual running the business (i.e., member, shareholder, owner.) and is taxed accordingly.
• An OPC has perpetual succession. In the event of death or incapacitation of the member to oblige the contract, the nominee appointed before the incorporation of the company is obliged to manage the affairs of the company. Thus, even after the death or incapacitation of the company member, the succession is passed further.
  However, a sole proprietorship does not have succession till perpetuity. Succession can only be designated by the last testament or will, which can be challenged in a court of law if required.
• An OPC is required to satisfy a lot of compliance as a private company. It has to file returns and have its accounts audited annually.
  A sole proprietorship will only need to get its accounts audited under the provisions of Section 44AB of the Income Tax Act, that is, if its turnover crosses the specified threshold.
• Converting an OPC to a private or public limited company is mandatory when it achieves an annual turnover of over Rs. 2 crores for 3 years or a paid-up share capital of over Rs. 50 lakh.
  A sole proprietorship always has the same status as a proprietorship without depending upon its paid-up share capital or turnover.

Conversion of OPCs into other companies

An OPC can be converted into a public or a private limited company by passing a special resolution and altering its MOA and AOA as per the provisions Subsection (3) of Section 122 of the Companies act.

An OPC may be converted into a private or public company with the exception of a company registered under Section 8 of the Companies Act.

For its conversion to a private limited company, an OPC can increase its minimum number of members to two; otherwise, according to Section 18 of the act for conversion for a public company, the minimum number of members can be extended to seven.

Section 18 of the act laid down a provision for the conversion of already registered companies.

The company must apply to the registrar of companies in e-Form No.INC-6 for its conversion into Private or Public Company and the required fees as provided in the Companies (Registration offices and fees) Rules, 2014 by attaching the following documents requisite to it:

• Altered MOA and AOA
• Copy of resolution
• List of proposed members and its directors along with consent
• List of creditors
• Latest audited balance sheet and profit and loss account.

If the registrar satisfies the requirements, the registrar communicates its approval and issues the new certificate of incorporation.

Conclusion

An OPC is born of self ideas. This company has some special privileges and exemptions despite being classified as a private company.

An OPC is the best form of company for an individual wanting to initiate a business with limited liability ownership and the aim of growth in the future and increasing valuation for its company as it can be converted to other forms of companies.

An OPC is a better option than a sole proprietorship firm as an OPC grants several protection and privileges for better growth prospects. Its event has the minute requirements for its incorporation, making it easy to initiate business.

The decision-making process in an OPC is better than any other form of company.