The concept of a One Person Company is a type of company which was first introduced in the Companies Act, 2013. This type of concept of a company was not existent before that in the older Companies Act of 1956. Furthermore, this type of entity structure was introduced to simplify the complex procedure and compliance requirements that come along with other types of business models. Also, do you know that the UK was the first county that came up with the idea of forming this type of business entity? Keep reading for more interesting details about One Person Companies.
What is a One Person Company?
According to Section 2 (62) of the Companies Act, 2013, a OPC is defined as “a company which has only one person as a member.” Therefore, as per the definition, as defined by the Companies Act, 2013 means that a company that has only one shareholder as a member of the company is a One Person Company. Generally speaking, a OPC is founded by only one founder or promoter.
History of One Person Company: Origin
The United Kingdom was the first country to introduce the concept of One Man Company though the Soloman V. Soloman & Co. (1897). Furthermore, more countries began to adopt this model of company type. For example, the United States of America allows the formation of a single-member Limited Liability Company (LLC), Singapore allows the formation of OPC under the Companies Amendment Act, 2004. Furthermore, China introduced the concept of OPC in the year 2005, United Arab Emirates recognizes this form of business entity, under the Turkish Commercial Code since 2012, a joint-stock company or limited liability company may be formed with one or more members in Turkey, finally, Pakistan provides for formation of Single Member Company under the Single Member Companies Rules, 2003.
The concept of One Person Company was mooted, in the report of Dr J.J. Irani Committee. Thereafter, the Irani Committee briefly referred to the OPCs in its report. Furthermore, in Chapter III titled “Classification and Registration of Companies” the committee suggested multiple classifications of companies as given hereunder.
This classification included OPCs the following:
- On the basis of size
- Small companies
- Other Companies
- Based on the number of members:
- One person company
- Private companies
- Public companies
- On the basis of control
- Holding companies
- Subsidiary companies
- Associate companies
- On the basis of liability:
- by shares; and
- by guarantee (with or without share capital)
- Based on the manner of access to capital:
- Listed companies
- Un-listed companies
What effects did the concept of One-Person-Company make on the Indian entrepreneurs
The model of OPC is still in its embryonic stages in India and would require some more time to mature and to be fully accepted by the business world. With the passage of time, the OPC model of business organization is believed to become the most preferred form of business organization, especially for small entrepreneurs.
Therefore, the benefits emanating from this concept are a lot, but to name a few are as follows;
- Minimal paperwork and compliances
- The ability to form a separate legal entity with just one member
- The provision for conversion to other types of legal entities by induction of more members and amendment in the Memorandum of Association
The OPC concept holds a bright future for small traders, entrepreneurs with low risk-taking capacity, artisans and other service providers. The OPC would act as a launchpad for such entrepreneurs to showcase their capabilities in the global market.
Read our article: A Complete Guide on One Person Company Registration in India
Salient features of One Person Company
The salient features of OPCs are as follows;
- The desire for personal freedom that allows the Professionally skilled person to adopt the business of his choice.
- Give the advantage to Personality driven passion and helps with the implementation of the business plan
- The desire of the entrepreneurial individual to take the extra risk and willingness to take additional responsibility.
- A person can feel assured about his sole idea
- It is run by individuals, yet OPC is a separate legal entity similar to other registered corporates
- An OPC is incorporated as a private limited company
- It must consist of only one member and one director
- The nominee and member should be a natural person, Indian Citizens and should be residing in India. Furthermore, the term “resident in India” refers to a person who has stayed in India for a period which is not less than 182 days during the immediately preceding one calendar year.
- An individual cannot incorporate more than one OPC or become a nominee in more than one OPC.
- Also, if a member of OPC becomes a member in another OPC by virtue of his being the nominee in that OPC then within 180 days he shall have to meet the eligibility criteria of being a member in one OPC
- OPCs need to change to a Private Limited Company if the paid-up capital exceeds Rs. Fifty lakhs or average the annual turnover is more than two crores in three immediate preceding consecutive years.
- Furthermore, No minor is allowed to become member or nominee of the One Person Company or hold share with beneficial interest.
- However, it cannot be incorporated or converted into a company specified under section 8 of the Companies Act, 2013.
- Furthermore, such a company can not carry out Non-Banking Financial Investment activities, including investment in securities of any body corporate.
- Also, no OPC can convert voluntarily into any kind of company unless two years have expired from the date of incorporation, except in cases where capital or turnover threshold limits are reached.
- An existing private company is other than a company registered under section 8 of the Act which has paid-up share capital of Rs. 50 Lakhs or less or the average annual turnover during the relevant period is Rs. 2 Crores or less may convert itself into OPC by passing a special resolution in the general meeting.
Advantages provided to One Person Companies
Some of the advantages and benefits provided to OPCs are as follows;
- The OPCs have limited liability
- OPCs do not have proprietorship concerns; i.e., they give a dual entity to the company as well as the individual, guarding the individual against any pitfalls of liabilities. Moreover, this is the basic difference between an OPC and Sole Proprietorships.
- Also, unlike a private limited or public limited company (listed or unlisted), OPCs have to bother too much about compliances.
- Businesses currently running under the proprietorship model can get converted into OPCs without any difficulty.
- Furthermore, OPCs require minimal capital, to begin with. Also, being a recognized corporate could well raise capital from venture capital financial institutions, etc., thus graduating to a private limited company.
- Mandatory rotation of auditor after the expiry of a maximum term is not applicable. Also, the annual return of an OPC has to be signed by a company secretary, or where there is no company secretary, by the director of the company.
- Moreover, the provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of general meetings, do not apply on a One Person Company.
- An OPC needs to have a minimum of one director. On the other hand, it can have up to a maximum of 15 directors which can also be increased by passing a special resolution similar to in case of any other company.
- Furthermore, for holding Board Meetings, in case of an OPC which has only one director, it is adequate compliance if all resolutions required to be passed by such a Company at a Board meeting. They are entered in the minutes-book, signed and dated by the member, and such date is considered as the date of the Board Meeting for all the purposes under this Act.
- For other OPCs, at least one Board Meeting should be held in each half of the year, and the gap between the two meetings must not be less than 90 days.
- The financial statements of an OPC have to be signed by the only director of the company. Furthermore, the cash flow statement is not a mandatory part of financial statements for a One Person Company. Financial statements of an OPC need to be filed with the Registrar, after they are duly adopted by the member, within one hundred eighty days of closure of financial year along with all prescribed documents.
- The Board’s report needs to be annexed to financial statements may only contain explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.
One Person Company is a type of company that can be incorporated with just one member. Therefore, it makes a One Person Company a type of business entity which is best suitable for individuals who want to start a business but don’t have many people to join them. With Corpbiz, you can easily incorporate your own One Person Company.