One Person Company
Owning a business invites a lot of challenges throughout its lifetime. A series of things are required to be taken care of for a business on a daily basis. Making arrangements for finances, office premises, warehouses if required, staff to work under are the common ones. As the business grows, the need for these basic things increases proportionately. A person can start his business in a variety of ways. It can be in the form of a sole proprietorship, a HUF, LLP, partnership firm, or a company.
While starting off, a person usually possesses a limited amount of resources to start one’s business. This deprives the person of starting a company form of business due to a lack of resources. For avoiding such drawbacks and promoting entrepreneurs in running their businesses under a company’s label, the concept of OPC i.e One Person Company has been introduced by the existing company law of India (Companies Act 2013).
To understand the concept of OPC, we shall look into the following points:
1) How did the concept of OPC come into being?
Many countries around the world such as the USA, Australia, and the UK had begun to follow the OPC form of business under similar or synonymous names.
In India, the year 2005 saw the formation of a committee headed by the then director of Tata sons, Dr JJ Irani, who recommended the concept of OPC.
The committee made suggestions that the OPCs are normally the businesses of a small scale need to be relieved from the complex compliance requirements framed by the previous company laws so that they could focus more on their core business rather than fulfilling the stringent statutory requirements.
This is how the concept of OPC was later recognized by the new company law.
2) What does the company law provide with respect to OPCs?
-OPC, as the name suggests is owned by only 1 member. The only shareholder in an OPC can also act in the capacity of the Director of that OPC.
-An OPC shall have at least 1 director and at the most 15 directors which can be further increased by passing a special resolution.
-An OPC can be a company that is limited by shares or a company limited by guarantee.
An OPC shall comply with the following rules as given under the Indian Company law:
(a) A single member who shall be a natural person, whether a resident of India or not shall form an OPC.
(b) A nominee member who is also a natural person shall form part of an OPC
(c) An individual can neither be a member of more than one OPC nor can he be a nominee in multiple OPCs. It simply means that a person can be a member in one OPC and a nominee in the other OPC (i.e cannot hold positions in the same capacity in multiple OPCs)
(d) A person who is a minor cannot hold the position of a member or a nominee in an OPC.
(e) Conversion of OPC into companies defined under Section 8 of Indian company law (i.e companies not for profit) shall be prohibited.
(f) An OPC cannot be converted into any type of company until 2 years have passed from it coming into existence.
However, if the paid-up capital of such OPC exceeds 50 lakhs or the average of its annual turnover is more than 2 crores then such conversion can happen even when less than 2 years have passed from its existence.
3) Sole proprietorship or OPC. Which one is more preferable?
- Though the sizes of both business organizations might seem similar, the factor of liability is what differentiates the two.
- In a sole proprietorship, the owner’s liability is unlimited and even his personal assets can be attached to discharge the liabilities due if required whereas since an OPC is a company the liability of a single member is limited only up to the amount contributed by him towards the company’s capital.
- This basis of difference might influence many upcoming and new businessmen to form an OPC over a sole proprietorship.
4) What exemptions do the OPCs enjoy under the Indian company law?
- An OPC need not prepare a cash flow statement like other companies.
- It is not required to conduct AGMs (Annual General Meeting) as they have only 1 member who shall be approving all the business transactions.
- Where an OPC has only 1 Director on its Board, he can grant approval to a business transaction presented before him by merely entering the decision taken in the company’s minutes recording book. On doing so, it shall be deemed that the company has held its Board Meeting.
Conclusion:
With the concept of entrepreneurship and startup culture gaining popularity in our country India, the OPC form of business can be best suited for such budding ventures. It would be a rare combination of being a single owner of the business and yet the words Pvt Ltd (OPC) added along with its name. This is because an OPC has been granted the status of a private company.
Also, recently with the amendments passed in the Union Budget of the financial year 2021-22 the single member of an OPC shall be considered a resident even if he stays in India for a period of 120 days during the previous financial year and not 182 days as earlier followed. Since an OPC in India, can now be started by a non-resident, it has opened up business opportunities for foreigners in India.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.
