Exclusivity in ownership: One person company

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

A one-person company get considered a separate legal entity apart from its members. The shareholder of this company is a subscriber to the company’s memorandum of association.

Mostly, it gets considered the same as a sole proprietorship, but in reality, they are both different. A one-person company is a separate legal entity like a private company. It can draw all the benefits of a private company while a sole proprietorship doesn’t have any separate legal existence.

Meaning and definition of One Person Company

The companies act, 2013 Section 2(62) lays down the definition of a one-person company.

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 section sub-section (1) clause [c] of the companies act 2013, a one-person company 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 the One person company

There are some significant features of a one-person company. These are:-

• An OPC gets 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.
• The single member of the company has to appoint a nominee at its incorporation. This nominee will be liable to manage the company’s affairs on account of the sole member’s death or incapacity to contract.
• The directors’ number in an OPC can go up to fifteen as per section 149(b) of the act provisions.
• There is no least amount of paid-up capital required for OPCs.

OPC Registration Procedure in India

Basic requirements for OPC’s registration

• Minimum and Maximum of one member.
• A nominee for the company should get 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 get based on the provisions of the Companies (Incorporation Rules) 2014.
• DSC of the proposed director.
• Address proof of 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 Digital Signature Certificate (DSC) of the proposed Director by submitting valid ID proofs, email, contact, etc.

2. Apply for DIN

   Once the Digital Signature Certificate (DSC) is obtained, the proposed director has to 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 in 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, etc.

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

Documents Required For OPC

There are some following documents required to get submitted to the registrar of companies. These are:-

• 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, which must get entered in Form INC–3 attached with his 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 the Form INC -9 and DIR – 2, respectively.
• A declaration stating that all the required compliances are done

Filing of Forms With MCA

All these documents must get attached with the SPICe form, including the director signature certificate, MOA and AOA of the director.

The PAN and TAN get generated at the time of incorporation of the Company. It is not required to file separate applications 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 will issue a certificate of incorporation of that one-person company.

Advantages of OPC (One Person Company)

Legal entity

An OPC has the status of a separate legal entity apart from its member. It protects 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 held liable for the company’s loss.

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

Obtaining funds

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

It becomes easy to obtain funds in a private company because of its registration with MCA and market growth perspective which cannot be found at the same level in a proprietorship firm.

Compliances

An OPC has a certain exemption concerning the compliance that must get maintained by a private company.

The OPC’s get exempted from preparing the cash flow statement for each financial year.

The books of accounts are to be signed by the company secretary is not a requisite, and the director can only sign the annual returns.

Easy incorporation

Incorporating an OPC gets compared to another form of the company. The minimum number of directors or members required at its incorporation is only one, including one nominee.

There is not even a requirement of minimum paid-up capital.

Easy to manage

Managing the affairs one-person company is feasible as only a single member gets required for its management. The decision-making process becomes prompt, and the ordinary and special resolutions are passed easily without much hassle. The management is prompt so that the decision making and authorisation require the approval of only a single member.

Perpetual succession

A one-person company has the nature of succession till perpetuity even after having only one member as its director. Upon the death of the sole member, the nominee appointed before the company’s incorporation will manage the company and its affairs, and this process goes on and on.

It has a separate legal status created by law, so the death, insolvency, or retirement of its members doesn’t affect the company’s existence.

Disadvantages of OPC

Suitable for only small business

The maximum number of members the OPC can have is one at all times, making the company’s management a more hectic process.

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

Restriction of business activities

The OPC’s cannot indulge in Non-Banking Financial Investment activities. In simple terms, it cannot initiate an NBFC business.

It cannot invest in the securities of other companies.

An OPC cannot get 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 get segregated, or the hierarchy line is not clear as the sole member can be both the doctor and the member of the company. The sole member can make all the decisions of the company.

All the decision making by a single person could be fatal in future prospects.

Difference between OPCs and sole proprietorships

• The One person company is a separate legal entity having the limited liability of its members in case the company suffers loss while,

  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 enough to pay the debts, then the perusal property of the partners can be attached in such a case to meet the debts.

• Being the facts that an OPC is a Private Limited Company, it gets subjected to taxation as per the provisions of income tax act 1961 while,

  A sole proprietorship firm gets treated as a single entity, so the firm’s income is considered the income of the individual running the business (i.e. member, shareholder, owner, etc.) and is taxed accordingly.

• An OPC has a perpetual succession. In the event of death or incapacity to the contract of the member of the OPC, the nominee appointed before the incorporation of the company will get obliged to manage the affairs of the company. In this way, even after the death or incapacity of the company member, the succession is passed further.

  However, a sole proprietorship doesn’t have the nature of succession till perpetuity. It can only have its succession by the last testament or will, which can be further challenged in a court of law if required.

• The One Person Company is required to meet a lot of compliance as a private company. It has to file Annual Returns and get its accounts audited in the same manner.

  On the other hand, a sole proprietorship will only need to get its accounts audited under the provisions of Section 44AB of the Income Tax Act, i.e., if its turnover crosses the specified threshold.

• It is a requisite to convert a one-person company to a private or public limited company when it achieves an annual turnover of over Rs. 2 crores for three 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

The One Person Company can get converted into a public or a private limited company by passing a special resolution and altering its memorandum of association and articles of association as per the provisions sub-section (3) of section 122 of the companies act.

An OPC may get converted into a Private or Public Company except a company registered under section 8 of the companies act.

For its conversion to a private limited company, it can increase its minimum number of members to two; otherwise, for a public company, the minimum number of members can be extended to seven, complying with section 18 of the Act for conversion.

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 documents requisite to it.

These required documents are

• Altered MOA and AOA
• copy of resolution
• the list of proposed members and its directors along with consent
• list of creditors
• the latest audited balance sheet and profit and loss account.

If the registrar satisfies the requirements, the Registrar will communicate its approval and issue the new certificate of incorporation.

Conclusion

One Person Company is the creation of self ideas. This company has some special privileges and exemptions despite being in private companies.

It’s the best form of company for an individual wanting to initiate a business with limited liability ownership and the future aim of growth and increasing valuation for its company as it can get converted to other forms of companies.

An OPC is a better option than a sole proprietorship firm as the protection and privileges granted under an OPC with growth prospects are bliss. 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.