One Person Company

Author: Ms. Palak Arora, VIPS

ONE PERSON COMPANY

We will be talking about One Person Company which is one of the types of company. But before that, we need to know what company is?

Company is a legal entity/legal person having status and personality, it is separate and distinct from the members who constitute it.

Meaning

As the name suggests, one person company comprised of one person only. OPC is defined under subsection 62 of section 2 of the Companies Act, 2013. It is defined as a one shareholder corporate entity where legal and financial liability is limited to the company only (1 member and 1 shareholder). Before the commencement of Companies Act,2013 person had one option of sole proprietorship only, there was no concept of OPC.

Difference between a sole proprietorship and OPC:-

Sole Proprietorship One Person Company
It is not separate from its promoters. It is separate from its promoters.
Liability of promoter is unlimited. Liability of promoter is limited.

Characteristics of one person company:-

Concept of One Person Company was originated from the J.J Irani report of 2005. Idea promulgated was that small entity should be allowed to have a small business with simple legal regimes.

OPC is a private company because it is not a public company and according to section 3, any company which is not a public company is a private company.

  • The most prominent and striking feature of an OPC is the fact that it has only:
  • One Director
  • One shareholder – both rolled into one.
  • When a member goes to incorporate memorandum of OPC, he should indicate the name of the other person with his prior written consent that shall in the event of promoter’s death or in his incapacity to contract, becomes the member of the company.
  • Written consent of such person shall be filed with the registrar at the time of incorporation of AOA and MOA.
  • On the death of promoter/member, the nominated person shall be recognized as the member of the company and shall be entitled to all the shares, dividends, rights and liabilities to which the sole member was entitled to.
  • Such a person can withdraw his consent anytime. And even member of OPC can change the name of such person anytime by giving notice. He must intimidate the change to the company by indication in MOA and shall also intimidate the registrar.
  • Words “OPC” shall be mentioned in [ ] below the name of the company wherever it is affixed, printed or engraved.
  • No person is eligible to incorporate more than 1OPC (1person=1 OPC).
  • No person is eligible to be a nominee in 1 OPC.
  • Minor can’t be a member or a nominee in OPC.

Relaxations to OPC

By relaxation means some advantages that OPC gets over other kinds of companies.

  1. Cash flow statement [s.2(40)]

OPC need not prepare a cash flow statement whereas other companies have to prepare it.

  • Annual return [s.92]

In the case of OPC, it can be signed by the directors and not necessarily by the company secretary. While other companies have to get it signed by both directors and company secretary.

  • Annual General Meeting (AGM) [s.96]

No necessity to hold AGM in case of OPC while other companies have to hold AGM at the end of the financial year.

  • Extraordinary general meeting & general meeting [s.100 & 111]

These are not applied to OPC. While other companies have to hold EGM and GM for the discussion of important matters.

Since OPC consists of one member only, therefore, it exempted to hold any such meetings as that sole member is competent to take any decision on his own.

  • Business transactions at AGM & GM by means of ordinary & special resolution

[s.122]

Compliance is said to have been done if the resolution is entered in minutes in “book of accounts”.

  • Audited financial statement [s. 134]

It is sufficient if only 1 director signs the audited financial statement.

  • Filing of financial sheet [s.137]

It should be filed within 6 months from the closure of the financial year i.e., 31st March. While other companies have to file it within 30 days of AGM.

  • Board meetings [s.173]

OPC needs to hold board meetings, once in 6 months, twice a year.  The gap between 2 meetings should be 90 days. While in other cases, board meetings should be held 4 times a year.

Requirements

3 requirements need to be fulfilled to incorporate OPC:-

  1. Natural person
  2. Indian citizen
  3. A resident of India (Person should stay in India past 182 days consecutively in the preceding financial year)

Cessation of an OPC

An OPC ceases to be an OPC if:-

  1. Its paid-up share capital exceeds 50 lakhs.
  2. Its average annual turnover exceeds 2 crores.

Both 1 and 2 are cumulative requirements that need to be fulfilled for the cessation of an OPC.

As a consequence of cessation, within 6 months OPC has to convert itself into a private company or public company from the date of cessation by increasing its Directors and members and paid-up capital to that of Private/Public Company and by following the procedure of conversion in section 18 of the Act.

So OPC is a very good way for small start-ups and enterprises to carry on their business as with the help of OPC they can enjoy some benefits which they don’t get in other companies and they have less pressure and obligations as compared to other companies and sole proprietorship.

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