One Person Company

• by CS Prakash K. Pandya, assisted by Ms. Krinjal Shah

In India, one can have three types of limited company viz. Public Company, Private Company and One Person Company. The concept of One Person Company (OPC) was first recommended by the expert committee of Dr. J.J. Irani in 2005. It is introduced through the Companies Act, 2013. One Person Company means a company which has only one person as a member[1]. It is commonly known as OPC.

The concept of OPC is set to organize the unorganized sector of proprietorship firms and other entities. Small business persons will grow in Indian entrepreneurship, be it weaver, traders, artisans, small to mid-level entrepreneurs, OPC is having an optimistic future and will help them to grow and get globally recognised.

Those who want to start their own ventures with a structure of organized business, OPC provides good option as compared to proprietorship. Similarly, limited liability partnership (LLP) provides structure of organized business as compared to traditional partnership.

How is OPC different from proprietorship?

Paramount difference is that OPC has a legal existence separate from individual who has created it. Consequently, OPC can own assets / property in its own name, including trade mark / other intellectual property rights. Thus, property owned by an individual is different from property owned by OPC created by the same individual.

Liability of OPC is different from its owner. Whereas in proprietorship liability is not distinct and hence liability of partnership extends to its owner and in unfortunate event can extend to personal assets of owner of proprietorship.

OPC can enter into contracts and can file suit against any other person in the name of OPC and not in the name of proprietor. Similarly, liability of OPC is separate from that of its owner.

Whereas in traditional proprietorship, there is no legal existence of proprietorship entity from its owner. Property of proprietorship is the property of the owner and also liability of proprietorship is that of owner. Thus, there is no distinction between owner of proprietorship entity and the proprietorship entity itself.

What business can be carried out by OPC?

Any commercial business, except the following, can be carried out by OPC:

• Non Banking Financial Investment activities,
• Investment in securities of any body corporate; and
• Activities of section 8 company.

How many persons required to form OPC?

As the name suggests, only one individual is required. S/he can be member as well as director of OPC. While there cannot be more than one member in OPC, number of directors can be more than one.

In case of private company, minimum two persons are required as member and same two can be Directors if they are individuals.

And in case of public company, minimum two persons are required as member and three persons as Directors.

In all cases, only individual can be Director.

LLP requires minimum two persons as it’s a partnership with limited liability.

Digital Signature Certificate (DSC) and Director Identification Number (DIN) is mandatorily required for the proposed applicant to be a Director.

Who can form OPC?

Any individual having citizenship of India and stayed in India for atleast 182 days in during the immediately preceding calendar year. Minor cannot neither incorporate OPC nor be entitled to hold shares of OPC beneficial interest.

An OPC can be formed under any of below categories:

1. Company limited by guarantee.
2. Company limited by shares.

An OPC limited by shares shall comply with following requirements:

1. Restricts the right to transfer its shares
2. Prohibits any invitations to public to subscribe for the securities of the company.

How many OPC can be formed by an individual?

Only OPC can be formed by an individual.

In how many OPC can an individual be nominee?

An individual can be nominee in only one OPC. Where same individual has incorporated an OPC and is nominee in another OPC and he becomes member of such other OPC due to disability of member of such other OPC, then such an individual has to decide within 180 days to remain member in any one of the two OPCs.

What are audit and auditor requirements for OPC?

OPC is mandatorily required to get its books of accounts audited from a Chartered Accountant, as by any other limited company. However, provision relating to rotation of auditor is not applicable to OPC.

What are the compliance requirement for OPC?

Some of the compliance requirements for OPC under the Companies Act 2013 are:

1. OPC shall have one member and one director. Same individual can be both member and director of the OPC.
2. Every OPC shall appoint Chartered Accountant as auditor for audit of its books of accounts.
3. OPC shall have share certificate, where it is limited by shares.
4. OPC shall maintain register of members, register of contracts and books of accounts with vouchers for every receipt and payment.
5. OPC need to maintain minutes book of Board Meetings and General Meetings.
6. OPC need not hold Annual General Meeting of its members, as it’s a single member company. Hence, OPC need not call any general meeting of its members. However, for matters requiring consent of members under the Companies Act 2013 either by ordinary resolution or special resolution, shall be communicated by sole member of OPC to the OPC in writing and it shall be recorded in minutes of meetings of OPC.
7. While OPC may have more than one Director, even one Director suffices. So in case, OPC has only one Director, decision of a sole Director shall be in writing, signed and dated by such sole director. Such signing date is treated as date of Board Meeting for the purpose of law and needs to be recorded in minutes of meetings.
8. Where OPC has more than one Director, atleast one Board meeting is required to be held by such OPC in each half of calendar year (01 January to 31 December). While there can be any number of Board meetings by such OPC, gap between two Board meetings in each half of the calendar year shall not be less than 90 days.
9. OPC having more than one Director, need to hold board meetings in compliance of Secretarial Standard-1.
10. Annual financial statement of OPC shall be signed by sole / any one Director of OPC.
11. Along with financial statement, Director(s) of OPC need to give report of Board of Director(s). It shall contain, inter alia, explanation or comments on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.
12. Every year, OPC shall file copy of its financial statement with Registrar of Companies (ROC) within 180 days from closure of its financial year i.e. by 30 September every year. Under law, it is mandatory to follow financial year from 01 April to 31 March.
13. Every year, OPC shall file annual return with ROC.
14. Any change in nominee shall be intimated to ROC.
15. For contracts between OPC and its sole member is permitted under law, in case of any such contract where sole member is also the Director of the OPC and if the contract is not in the ordinary course of business of the OPC, then either the contract shall be in writing or if not in writing, terms of contract shall be recorded in writing by way of a summary or entered in minutes of the first meeting of the Board of Directors held immediately after entering into such contract. And in case of a written contract also, the same shall be approved at the first meeting of the Board of Directors held immediately after entering into such contract. Also OPC need to inform ROC about the contract within 15 days of approval of the Board of Directors of the OPC.

What are limitations of OPC?

1. Every OPC must nominate a nominee (who can be, but need not be, friend, spouse, relative of the applicant) who will become the owner of the OPC in case the promoter of OPC is disabled for any reason. Such nominee shall give consent in writing to be a nominee. And such nominee shall be an individual who is citizen of India and residing in India (for atleast 182 days in during the immediately preceding calendar year). Owner of OPC can change nominee at anytime. Similarly, nominee can withdraw consent any time by giving written intimation to OPC.
2. Since, OPC is incorporate as private limited company, it need to write ‘One Person Company’ below its name to indicate that it’s a OPC.
3. OPC cannot convert itself into section 8 Company.
4. OPC cannot be converted into private or public limited company within two years of its incorporation, except in following cases:
5. If paid-up capital of OPC exceeds Rs,50 lakh or
6. If its average annual turnover during relevant period exceeds Rs. 2 crore.

After two years of incorporation, OPC can convert itself voluntarily into private / public limited company.

• OPC need to mandatorily convert itself into Private / Public limited company within six months of happening the following event:
• If paid-up capital of OPC exceeds Rs,50 lakh AND
• If its average annual turnover during relevant period also exceeds Rs. 2 crore.

And OPC need to give intimation of having crossed aforesaid limits to ROC within 60 days/

Sole proprietor can convert its business into OPC. It can have tax advantage (income tax and service tax), however it needs to be planned considering impact of capital gain tax and stamp duty.

[1] Section 2(62) of the Companies Act, 2013