Introduction

This concept of One Person Company (OPC) was first recommended by the expert committee of Dr. JJ Irani which was set up to take a comprehensive view on the changes necessary in the Companies Act, 1956 in context of the changing economic and business environment. It was later introduced in the new Companies Act, 2013.

OPC will give an opportunity to the people with ideas to start their own venture with an organized business structure but without considerable loss of time, energy and money on complex legal compliances. OPC will give the young businessman 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.

An OPC is a private company may be formed by one member.

Nominee

• The subscriber to the memorandum of an OPC will nominate another eligible person after obtaining written consent from such person. Such Nominee shall become the member of the OPC in the event of death or incapacity of the subscriber.
• The Nominee can withdraw his consent by a written notice to the sole member and the OPC. In such a case, the member shall nominate another person to be the nominee within 15 days from the date of receipt of notice of withdrawal. He shall send in writing to the OPC the intimation of such nomination. Within 30 days from the date of receipt of notice of withdrawal of consent, the OPC shall file with the Registrar
  • A notice of such withdrawal of consent,
  • Intimation of the name of another person nominated by the member.
• The subscriber/member may change the person nominated by it at any time for any reason, by intimation in writing to the OPC and nominate another person. On receipt of such intimation, the OPC shall, within 30 days from receipt of intimation of change, file with the Registrar a notice of such change.
• When the sole member ceases to be a member, due to death or incapacity, the nominee shall become the member and he/she shall, within 15 days of becoming a member, nominate another person , who shall in case of death or incapacity of the new member shall become a member. The OPC shall intimate the Registrar of such change within 30 days from the date of change in membership.

Features of OPC

• Only a natural person who is an Indian citizen and an Indian resident can
  • Form an OPC
  • Be a nominee for the sole member of an OPC
• One person cannot form more than 1 OPC or cannot be a nominee in more than 1 OPC,
• No minor can become a member or a nominee of an OPC,
• OPC can be converted into a public company or a private company in certain cases,
• The words “One Person Company” shall be mentioned in bracket below the name of such company, wherever its name is printed, affixed or engraved.

Restrictions on OPC

• OPC cannot be converted into a company under Section 8 of the Companies Act, 2013,
• OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporates,
• OPC cannot voluntarily convert into any other kind of company upto 2 years from its incorporation.

Contracts by OPC

• When an OPC enters into a contract with the sole member of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the board of directors of the company held next after entering into contract. This requirement, however, will not apply to contracts entered into by the company in the ordinary course of its business.
• An OPC is required to inform the registrar of companies about every such contract within a period of 15 days of the date of approval by the board of directors.

Conversion of OPC

• Compulsorily:
  • In the following cases, the OPC shall cease to be entitled to continue as an OPC
    • Paid-up share capital > Rs 50 lakh.
    • Average annual turnover of immediately preceding 3 consecutive financial years >Rs 2 crore.
  • In case of breach of above conditions, the OPC shall have to convert itself into a public or a private company within 6 months
    • from the date on which its paid-up share capital is increased beyond Rs 50 lakh or
    • from the last date of the period during which its average annual turnover exceeds Rs 2 crore.
  • The OPC shall give a notice to the Registrar within 60 days that it has ceased to be an OPC and will now be required to convert itself into a public or private company.
• Voluntarily: an OPC can voluntarily get converted into a private or a public company by increasing its number of members and directors to 2 or 4 members and 2 or 3 directors respectively. However such conversion can be done only after 2 years have expired from the date of the incorporation of such OPC.
• The OPC shall have to alter its memorandum and articles by passing a resolution to give effect to the conversion and make the necessary changes incidental thereto. 

Conversion of private company into OPC

Any private company other than a Section 8 company with a paid up capital < Rs 50 lakh or an average annual turnover of immediately preceding 3 consecutive financial years < Rs 2 crore can get itself converted into an OPC subject to following conditions:

• No objection certificate to be obtained in writing from members and creditors,
• Special Resolution needs to be passed in the general meeting,
• File a copy of the Special Resolution with the Registrar within 30 days from the date of passing such resolution,
• The company along with its application for conversion, shall attach the following documents
  • Declaration by Directors that
    • all members and creditors have given their consent for conversion
    • Paid up capital <= Rs 50 lakh or average annual turnover of immediately preceding 3 consecutive financial years < Rs 2 crore.
  • List of members and creditors,
  • Latest Audited balance-sheet and P&L Account, and
  • Copy of No Objection letter of secured creditors.

Penalty

If the OPC or any of its officer contravenes the provisions of the Companies Act, 2013 or its rules, they shall be punishable with a fine which may extend to Rs 10,000/- and with a further fine which may extend to Rs 1000/- per day for each day during which the contravention continues.

Privileges and exemptions available to OPC

• The minimum number of directors required for an OPC is just one.
• “Cash Flow Statement” has been removed from the definition of financial statements for OPCs.
• The annual returns in the case of One Person Company shall be signed by the company secretary or where there is no company secretary, then by the director of the company.
• OPC has been specifically exempted from the compliance under Section 96 of the Companies Act, 2013, of holding Annual General Meeting.
• The following provisions of the Companies Act, 2013 shall not apply to an OPC
  • Section 98: Power of Tribunal to call meetings of members, etc.
  • Section 100: Calling of extraordinary general meeting.
  • Section 101: Notice of meeting.
  • Section 102: Statement to be annexed to notice.
  • Section 103: Quorum for meetings.
  • Section 104: Chairman of meetings.
  • Section 105: Proxies.
  • Section 106: Restriction on voting rights.
  • Section 107: Voting by show of hands.
  • Section 108: Voting through electronic means.
  • Section 109: Demand for poll.
  • Section 110: Postal ballot.
  • Section 111: Circulation of members’ resolution.
• In case of business which is required to be transacted at annual general meeting, it shall be sufficient if the member communicates the resolution to the company and enters it in the minutes book with sign and date. Such date shall be deemed to be the date of the meeting for all purposes.
• Where there is only 1 director in an OPC, in case of business which is required to be transacted at a board meeting, it shall be sufficient if the director enters the resolution in the minutes book with sign and date. Such date shall be deemed to be the date of the meeting for all purposes.
• The time limit for filing of a copy of financial statements duly adopted by its member along with all the documents which are required to be attached to such financial statement, to the RoC has been changed from 30 days from date of annual general meeting (in case of a company) to 180 days from the closure of the financial year for OPC.
• An OPC shall deemed to have complied with the provisions of Section 173 of the Companies Act, 2013 if it conducts at least 1 meeting of the board of directors in each half of a calendar year with a gap of at least 90 days between the 2 meetings.

Difference between an OPC and a sole proprietorship firm

• Limited Liability – An OPC being a company has a separate identity from its promoter. Hence the liability of the member is limited to the unpaid subscription money in his name, whereas in sole proprietorship, the owner’s liability is unlimited.
• Succession – In an OPC there is a nominee designated by the member. The nominee shall become a member of the company in the event of death of the original member. In the case of sole proprietorship this can only happen through an execution of WILL which may or may not be challenged in the court of law.
• Compliances – All the provisions related to the private company are applicable to an OPC, unless otherwise expressly excluded. Hence it would need to get its accounts audited, file annual return, etc. On the other hand a sole proprietorship would only need to get audited under the provisions of Section 44 AB of the Income Tax Act, 1961 once its turnover crosses the certain threshold.
• Tax Bracket – A flat tax rate of 30% plus 3% edu. cess shall be applicable to an OPC, whereas in a sole proprietorship, differential tax rates for different slabs of income, as in case of an individual, shall be applicable.

Conclusion

The OPC structure seems to be useful for small entrepreneurs who can conduct business in a organized business structure with limited liability and limited compliances. However, it also seems that the cost of conducting business through an OPC will be high due to flat tax rate of 30% plus 3% edu. cess. Also, OPC being a company, it will attract dividend distribution tax on distribution of profit to the member. Hence, only time will tell whether OPC is adopted as a structure for conducting business.