The concept of One Person Company in India was introduced through the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity.
What is a One Person Company?
The concept of One Person Company in India was introduced through the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a One Person Company (OPC) is that there can be only one member in an OPC, while a minimum of two members are required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership (LLP). Similar to a Private Limited Company, a One Person Company is a separate legal entity from its promoter, offering limited liability protection to its sole shareholder, while having continuity of business and being easy to incorporate.
Though a One Person Company allows a lone Entrepreneur to operate a corporate entity with limited liability protection, an OPC does have a few limitations. For instance, every One Person Company (OPC) must nominate a nominee Director in the MOA and AOA of the Company – who will become the owner of the OPC in case the sole Director is disabled. Also, a One Person Company must be converted into a Private Limited Company if it crosses an annual turnover of Rs.2 crores and must file audited financial statements with the Ministry of Corporate Affairs at the end of each Financial Year like all types of Companies. Therefore, it is essential for the Entrepreneur to carefully consider the features of a One Person Company before incorporation.
OPC in India
The concept of One Person Company in India was introduced by Dr. Jamshed J. Irani in his Report on Company Law dated 31st May, 2oo5 . As per the report, Dr. Irani recommended that with the increasing use of information technology and emergence of a strong service sector in India, it was time for the Government to empower entrepreneurs who on their own are capable of developing ideas and participating in the marketplace. He suggested that entrepreneurs who on their own are capable of starting a venture should not be made to do it through an association of persons, and should be able to create a single person economic entity in the form of ‘One Person Company’. Further, it was also suggested that such an entity may be provided with a simpler regime through exemptions so that the single entrepreneur is not compelled to fritter away his time, energy and resources on procedural matters.
This led to the introduction of “One Person Company” in the Companies Bill 2013, which got its assent in the Lok Sabha on 18 December 2012 and in the Rajya Sabha on 8 August 2013. After obtaining the assent of the President of India on 29 August 2013, it has become the Companies Act, 2013.
Benefits of One Person Company
Till the introduction of One Person Company in India, the Limited Liability and Continuous Existence feature was only available to an association of persons such as a Private Limited Company or Limited Liability Partnership or a Limited Company. With the introduction of One Person Company, the limited liability and continuous existence feature is now also available for One Person Company, which is an entity with just one member. As One Person Company has just one member, it is necessitated by the law for the single member of the Company to designate another person in the Memorandum of Association, who on the event of subscriber’s death or incapacity shall become the person to contract. This mechanism provides an adequate safeguard to ensure continuous existence of the entity even in case of incapacitation of the single member.
All companies in India are required to hold an annual general meeting each year, in addition to any other meetings and not more than fifteen months should elapse between the dates of subsequent annual general meetings. One Person Company is exempt from holding an annual general meeting or extraordinary general meetings. The resolution signed by the single Director and entered into the minutes book is sufficient, in lieu of a General / Extraordinary General Meeting.
Every company in India is required to prepare and file financial statements that includes balance sheet, profit and loss account, cash flow statement, statement of changes in equity and explanatory notes. In case of One Person Company, cash flow statement is not required.
OPC Registration Process
Before exploring the concept of a one person company, let us have a brief understanding of the various types of companies that can be formed. A company can be established for a lawful purpose by the following number of persons:
- Seven or more persons, in case of a public limited company.
- Two or more persons, in case of a private limited company.
- One person, in case of a one-person company.
Unlike a private limited company, a one person company has certain restrictions associated with its incorporation. Hence, before starting an OPC registration, its essential to understand the constraints and ensure the promoter is eligible as per the Companies Act to register a OPC.
- Only a natural person who is Indian Citizen and resident in India can incorporate OPC.
- Resident in India means a person who had resided in India for a period not lesser than 182 days in the prior calendar year.
- Legal entities like Company or LLP cannot incorporate a OPC.
- The minimum authorized capital is Rs 1,00,000.
- A nominee must be appointed by the promoter during incorporation.
- Businesses involved in financial activities cannot be incorporated as a OPC.
- OPC must be converted to a private limited company when paid-up share capital exceeds Rs.50 lakhs or turnover crosses Rs.2 crores.
Thus, a one-person company can be formed by an Indian citizen who has his/her presence in India for at least 182 days during the immediately preceding calendar year. A person can incorporate not more than one OPC. Finally, an OPC is prohibited from having a minor as its member.
Nominee in One Person Company
The rules for incorporation of one person company requires that the sole member of a One Person Company should include the name of a nominee in the Companies MOA, who will undertake the entity after the expiry or incapacity of the former. Moreover, the document must contain the written consent of the nominee, which must also be filed with the Registrar during incorporation along with the MOA and AOA.
Withdrawal of Consent
The nominee is entitled to withdraw his/her consent, in which case the sole member is required to nominate another member as a legal heir within 15 days of the notice of withdrawal. The nomination of new personnel must be intimated to the Company through a written consent in Form INC-3. The Company, in turn, is required to file the notice of withdrawal of consent along with the intimation of the new nominee with the Registrar in Form INC 4.
Change of Nominee
The sole member of a ‘One Person Company’ is empowered to change the nominee of the Company for any reason whatsoever, by providing notice in writing to the Company. Again, the new nominee must consent to the nomination in Form INC 3, and the Company must file the notice of change and consent of the nominee with the Registrar along with the applicable fee, within 30 days of receiving the intimation of change.
If a nominee becomes in-charge of the one person company due to the cessation of the original member’s term owing to the death or incapacity of the latter, the new member must appoint a nominee as a replacement.
If a One Person Company or an officer of such Company is not compliant with the specified regulations, the entity or the officer will incur penalties which could be as high as Rs 10,000. Further, the penalty will be increased by a fine of Rs 1,000 for each day of default.
The process for incorporation of a One Person Company can be divided into four steps as under:
- Obtaining Digital Signature
- Obtaining Name Approval
- Incorporation Filing
- Commencement of Business
Obtaining Digital Signature
Digital signature certificate must be obtained for the sole promoter and the nominee for processing the incorporation. Application for DSC would require passport size photos of the applicant, identity proof and address proof.
In parallel to the Digital Signature application, the application for name reservation can be submitted to the MCA. Name approval applications are processed by the MCA in 24-72 hours. The name suggested must conform to the naming standards, and the name of the OPC must end or include the words (OPC).
After obtaining name approval, incorporation application can be filed to the MCA with signed Memorandum of Association (MOA) and Articles of Association (AOA). Further, the identity proof, address proof and residence proof of the member and nominee would be required. In addition to the MOA, AOA, identity proof, address proof, other incorporation documents like affidavits and declaration of the sole promoter must be submitted. Further, the consent of the nominee director must also be attached in Form INC-3.
On filing for incorporation, approval is granted by the Registrar of Companies (ROC). In case there are any issues with the documents submitted, the application for incorporation can be resubmitted.
Commencement of Business
Once the incorporation certificate is obtained, the OPC would initiate the process for bank account opening. IndiaFilings can help you open a bank current account. Once the bank account is opened, the promoter must deposit the amount mentioned in the MOA of the Company.
Once, the equity capital is infused into the Bank’s current account; the Company can file for the commencement of business with the MCA. Commence of Business certificate must be obtained with 180 days of incorporation to avoid a penalty.
Finally, In case notice of the situation related to registered office was not filed during incorporation, it must be filed after incorporation within 30 days. Documents required for filing INC-22 are:
- Lease deed or Rent agreement together with rent receipts.
- Copies of utility bills as described above that are not older than 2 months
- A proof that the Company is allowed to use the address as the registered office of the Company if the same is owned by any other entity or Person and is not taken on lease by Company
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