One Person Company (OPC) is a newly added concept that came into effect with the introduction of the Companies Act 2013. This is the only legal structure that allows a sole person to start his company with several concessions and rebates provided under the law.
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What is one person company meaning?
According to Section 2(62) of the Companies Act, 2013, the One Person Company definition is a single-person shareholder and listed with private companies. There are lots of differences between one person company and a sole proprietorship.
OPC being a single-member company cannot raise investment through the issue of shares as 100% shareholding of OPC shall remain with a single member. Although, unlike other private limited companies, it is allowed to raise funds through the issue of debentures and loans.
Apart from several benefits and ease of running OPC, the law imposes several restrictions upon it, such as OPC is not allowed to raise capital through investment. We have discussed other such restrictions imposed on OPC along with its registration criteria henceforth.
Restrictions on OPC
Following restrictions imposed upon OPC such:
- Restrictions on members: Only natural persons having the status of Indian resident and having Indian citizenship are eligible to form OPC and can be appointed as a nominee for sole-member
- Restriction on the limit of OPC incorporation: One person-one OPC is the specified rule for OPC. That is only OPC can be formed at a time by a particular person.
- Restriction on minor members: A person shall be aged 18 years or more for OPC provided that no minor is allowed to become a member or nominee of OPC.
- Restriction on business activities: OPC is not allowed to carry investment business that is it cannot carry Non-Banking Financial Investment activities. It is prohibited to invest in securities of other bodies corporate.
- Restriction on conversion: OPC cannot be converted into any kind of company before the expiry of 2 years from its date of incorporation. Also, OPC can neither be converted nor incorporated as a Section 8 Company.
Advantages and Disadvantages of One Person Company–
Advantages
The first and foremost thing every company owner must have thought about when they are about to start a company is fundraising. Registering your startup as an OPC can easily raise funds through the venture, angel investors, or capital. Also, as an OPC, it is easy to get loans from banks.
- You will be the single owner of your company. And that being said, you can make your decisions regarding your business and management. Also, you do not need to go through any elongated process of controlling and managing the business.
- A nominee director can take over the affairs of the company in the absence or demise of the original director. It would provide an adequate safeguard till the date of transmission of the shares to the legal heirs.
Disadvantages
- OPC is not suitable for small business owners. For example, if you have an effective high turnover that crosses 2 crores for 3 consecutive years, choosing or converting your OPC to a private limited company or LLP is better.
- An OPC can not issue ESOS or ESOPs to incentivize employees as it can have only one shareholder. To implement ESOS, the company has to convert into a private or public limited company.
- According to the Draft rules under the Companies Act 2013, the original director needs to appoint a nominee for an OPC. The nominee has to be a natural person, an Indian citizen, and also reside in India.
The requirement for Incorporating OPC
The following 4 things are the key requirement for the formation of OPC in India:
| At least 1 person is required to act as its member and director | One person who cannot be a minor to act as the nominee |
| Consent letter from the nominee | DIN and DSC of the sole director |
Incorporation of One Person Company
Following are the simple step to Register OPC online:
- Obtain the DIN and DSC of the director before applying for the company. Up to 3 DIN can directly be applied through SPICe
- Apply for name reservation through web-service of MCA; “RUN”. Before applying for a name make sure to check the name is available and is not registered with a trademark otherwise ROC can reject the same
- Upon the receipt of the Name Approval Letter, the applicant shall apply for company registration online through SPICe forms which can be downloaded from the official website of MCA
- Fill out the form, attach all the necessary documents with the form and attest the same by affixing the DSC of the director and practicing professional who certifies the same
- In case documents and information provided in the form are correct, and ROC is satisfied with the application shall grant a Certificate of Incorporation that remains valid through the life of OPC.
Conversion of OPC
The conversion of OPC into a Private Limited is governed under the Companies Act 2013. Converting the OPC will not affect its existing debt, liabilities, obligations, or contracts. OPC can be converted into a private limited in two following ways:
- Voluntary: Voluntary conversion is when the owner, upon its discretion willing to convert itself into a private limited. He is not permitted to do so unless 2 years are expired from the incorporation date. Under voluntary conversion, OPC shall notify the registrar by filing INC-5 within 60 days of such conversion.
- Mandatory: Mandatory conversion is when OPC shall convert itself into a private limited compulsorily in the following situations:
- Paid-up share capital exceeds INR 50 Lakhs; or
- The average turnover of the preceding 3 years exceeds INR 2 Crore
Investment Fund
- An OPC cannot issue shares to bring in a new shareholder, but it can raise capital through alternate methods such as loans or debentures.
- Its role as a financial intermediary is restricted, meaning OPCs cannot engage in non-banking financial investment activities.
- If you need a more advanced structure for pooling and managing capital, consider forming an investment fund instead.
- An investment fund established in a favourable jurisdiction can offer greater flexibility, scalability, and capital-raising options, especially when direct equity issuance is limited.
Annual Compliances
Annual compliances of OPC are similar to that of private limited with slight changes in such requirements. We have enumerated the list of annual compliance of OPC henceforth:
- OPC shall mandatorily conduct at least one board meeting every 6 months. That is minimum 2 board meetings shall be conducted yearly with a gap between two meetings being 90 days or more
- Director of OPC in the first Board Meeting of the financial year shall disclose his interest in other entities through form MBP-1
- Director shall file a declaration of his non-disqualification with the company every year through form DIR-8
- However, OPC needs not conduct AGM but is required to file financial statements through the filing of AOC-4 to ROC
- It shall also file an annual return in form MGT-7 within 60 days of recording the entry of ordinary resolution in its minute books
Summary
It is, therefore, apparent that an OPC cannot raise investment via the issue of shares since its entire shareholding lies with the owner. The funds can only be raised via debentures or loans.
For getting necessary assistance and guidance related to registration, annual compliance, and conversion of OPC, you can contact our team of experts having sufficient knowledge of legal and taxation.
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