One Person Company in India and its Formation
The revolutionary new concept of One Person Company (OPC) has been introduced by the Companies Act, 2013. OPC provides a whole new bracket of opportunities for those who look forward to start their own ventures with a structure of organized business. OPC will give the StartUpreneur’s all benefits of a private limited company which categorically means they will have access to credits, bank loans, limited liability, legal protection for business, access to market etc all in the name of a separate legal entity.
Till recently, if you wanted to set up a private company, you needed at least one other person because the law mandated a minimum of two shareholders. So, for the person wanting to venture alone, the only option was proprietorship, an onerous task since it is not legally recognized as a separate entity. Now, after the recent concept of OPC in Companies act,2013, there may be hope for the budding entrepreneur. The act that aims to bring in sweeping changes in the corporate world, has also opened the doors for the entrepreneur looking to set up a company all by himself. This has been made possible by bringing in the concept of One Person Company (OPC).
An OPC is incorporated as a private limited company, where there is only one member and prohibition in regard to invitation to the public for subscription of the securities of the company.
The Salient features of an OPC include the following:
- An OPC can be formed under any of below categories :
- Company limited by shares
- Company limited by guarantee.
- An OPC is required to give a legal identity by specifying a name under which the activities of the business could be carried on. The words ‘One Person Company’ should be mentioned below the name of the company, wherever the name is affixed, used or engraved.
- An OPC limited by shares shall comply with following requirements :
- Shall have minimum [paid up capital of INR 1 Lac
- Restricts the right to transfer its shares
- Prohibits any invitations to public to subscribe for the securities of the company.
- The member of an OPC has to nominate a nominee with the nominees written consent, and file it with the Registrar of Companies (RoC). This nominee in the event of death or in event of any other incapacity, shall become a member of an OPC. The member of an OPC at any time can change the name of the nominee providing a notice to the RoC in such manner as prescribed. On account of Death of a member, the nominee is automatically entitled for all shares and liabilities of OPC.
Advantages of ONE PERSON COMPANY
A One Person Company (OPC) Private Limited has many advantages as compared to Private limited Companies and Proprietorship firm:
1. Organized Sector of Proprietorship Company
OPC will bring the unorganized sector of proprietorship into the organized version of a private limited company. Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The organized version of OPC will open the avenues for more favorable banking facilities. Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited.
2. Minimum Requirements:
- Minimum 1 Shareholder
- Minimum 1 Director
- The director and shareholder can be same person
- Minimum 1 Nominee
- Minimum Share Capital shall be Rs. 1 Lac (INR One Lac)
- Letters ‘OPC’ to be suffixed with the name of OPCs to distinguish it from other companies
3. Limited Liability Protection To Directors and Shareholder
The advantage of limited liability is certainly a desire of any start-up. It encourages you to take additional risk with limited liability. (It means even if you fail, your liability will only be restricted to the value of your share capital, i.e. your personal assets are safe).
All unfortunate events in business are not always under an entrepreneur’s control; hence it is important to secure the personal assets of the owner, if the business lands up in crises. While doing business as a proprietorship firm, the personal assets of the proprietor can be at risk in the event of failure, but this is not the case for a One Person Private Limited Company, as the shareholder liability is limited to his shareholding. This means any loss or debts which is purely of business nature will not impact, personal savings or wealth of an entrepreneur.
4. Complete Control Of The Company With The Single Owner
You being the only owner give you full control over the entity.Yet owner can appoint as many as 15 directors in the OPC for administrative functions, without giving any share to them. Further, faster decision making will also help your business grow effectively.
5. Perpetual Succession
An OPC being an incorporated entity will also have the feature of perpetual succession and will make it easier for entrepreneurs to raise capital for business. The OPC is an artificial entity distinct from its owner. Creditors should therefore be warned that their claims against the business cannot be pressed against the owner.
6. Easy To Manage:
- No requirement to hold annual or Extra Ordinary General Meetings: Only the resolution shall be communicated by the member of the company and entered in the minutes book and signed and dated by the member and such date shall be deemed to be the date of meeting.
- Board Meeting: A One Person Company may conduct at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings shall not be less than ninety days.
- Minutes: Where the company is having only one director, all the businesses to be at the transacted meeting of the Board shall be entered into minutes book maintained under section 118. No need to hold Board Meeting in this case.
- Quorum: The provisions of Section 174 (Quorum for meetings of Board) will notapply to One Person Company in which there is only one director on its Board of Directors.
7. Legal Status And Social Recognition For Your Business
One Person Company is a Private Limited Structure; this is the most popular business structure in the world. Gives suppliers and customers a sense of confidence in business. Large organizations prefer to deal with private limited companies instead of proprietorship firms. Pvt. Ltd. business structure enjoys corporate status in society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, like directorship. These designations cannot be used by proprietorship firms.
8. Helps for Testing of business model and enables Funding
The OPC business helps Startup Entrepreneurs to easily test the business model, a prototype and upon building a marketable product approach Angel investors, Venture capitalists for funding and easily convert into multi shareholder Private Limited company.
9. Easy to Get Loan from Banks
Banking and financial institutions prefer to lend money to the company rather than proprietary firms. In most of the situations Banks insist the entrepreneurs to convert their firm into a Private Limited company before sanctioning funds. So it is better to register your startup as a One Person private limited rather than proprietary firm.
10. Tax Flexibility and Savings
In an OPC, it is possible for a company to make a valid contract with its shareholder or directors. This means as a director you can receive remuneration, as a lessor you can receive rent, as a creditor you can lend money to your own company and earn interest. Directors’ remuneration, rent and interest are deductible expenses which reduces the profitability of the Company and ultimately brings down taxable income of your business.
“Existing proprietors can also convert themselves into the One Person Company (OPC) or any other company as per the requirements and can avail the above mentioned benefits.”
For details, visit MyeCA, an online on-demand legal service provider where you can register your company/startup and manage legal things at your finger tips.
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