The new Companies Act 2013 (2013 Act) has amended favourably to suit the requirements and the dynamics of the present day economy. One such change is the One Person Company (OPC) which has been introduced as a new and refreshing concept.

This idea of OPC was propagated in 2005 by the JJ Irani Committee which had been set up for the sole purpose of incorporating necessary changes in the Companies Act, 1956 (1956 Act). They made observations regarding the changing economy and the need for giving a chance to individuals to operate in the economic domain on their own and contribute efficiently. This update is to provide you the salient features of the OPC.

Salient Features Of OPC

Definition: Section 2(62) of the 2013 Act defines OPC as a company which has only one person as a member. While under the 1956 Act, it was not possible to form a company with only one person as its member, 2013 Act provides for a new entity in the form of OPC, empowering the Central Government to provide for a simpler compliance regime for OPC and small companies.

Company Rules: The Companies (Incorporation) Rules, 2014 provides as following:

  • A natural person who is an Indian citizen and resident in India shall be eligible to incorporate an OPC and to become a nominee for the sole member of the OPC. Hence, body corporate, foreigners or a non resident individual cannot incorporate an OPC;
  • A person cannot incorporate more than one OPC or become a nominee in more than one OPC. However, such a person can be a member of one OPC and nominee of another OPC;
  • Where a member of an OPC becomes a member of another OPC by virtue of his nomination in that second OPC, he shall opt out of either one of the OPC within a period of 180 days;
  • A minor cannot become a member or nominee of an OPC or hold shares with beneficial interest; An OPC cannot carry out NBFC activities including investment in securities of anybody corporate.

Name Clause: Every OPC will mention ``One Person Company`` in brackets below the name of such company wherever it is printed, affixed or engraved. Hence, the name should be mentioned as

``ABC
(One Person Company)``
and not any other format

Conversions :

  • From OPC into Private/ Public Companies:When the paid-up share capital of an OPC exceeds INR 5 million or its average annual turnover during the relevant period exceeds INR 20 million then within 6 months from the date on which its paid up share capital increased as above or the last day of the relevant period for the turnover purposes, it shall convert itself into either a private company or a public company.
  • From Private Company into OPC:An existing private company other than a not for profit company having paid up share capital of INR 5 million or less or an average annual turnover during the relevant period of INR 20 million or less can convert itself into an OPC by passing a special resolution in the general meeting.

Compliance:OPC carries the compliance burden similar to any private company with certain exemptions which relatively reduce the compliance burden on them such as:

  • Not required to prepare a cash flow statement as a part of a financial statement;
  • Not need to appoint a Company Secretary ;
  • Not required to mandatorily hold Board or General Meetings; etc.

OPC is a seemingly risky concept, in terms of its mere dependence on one person. However, the Section 3 of the Act 2013 provides for the memorandum of the OPC to indicate the name of another person (nominee) who shall, in the event of the subscriber`s death or any other incapacity which makes it impossible for him to contract, act as the member of the Company. The nominee retains with him the option to withdraw his consent from becoming a nominee director.

MHCO Comment

OPC is beneficial to be formed because it often gives advantages to the entrepreneur whereby the liability gets limited to the extent of the unpaid subscription money. However, undertaking any Business under the OPC structure may effectively result in higher tax implications on the small businesses because once you become a company, the rates of taxes are higher. Moreover, OPC being a separate Legal entity, distribution of dividend will attract dividend distribution tax under the (Indian) Income Tax Act, 1961 as opposed to sole proprietors who are taxed at the rates applicable to individuals.

Alongwith the abovementioned reason, the concept of OPC should attract criticism for its oxymoronic nature. While a company denotes the coming together of more than one person; OPC suggests one person who is himself the promoter, the director and the member - all rolled into one – in spite of this it`s a company! So to say, it becomes something of a process of incorporating oneself. However, due to its various advantages, OPC looks like a promising concept which needs to be put to test in the Indian Economy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.