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Can One Person Company (OPC) raise investment?

Rajhu S Goraai by Rajhu S Goraai
January 15, 2020
in Business, Entrepreneur
0
education institution in uk

One Person Company (OPC) is a newly added concept that came into effect with the introduction of Companies Act 2013. This is the only legal structure that allows sole-person to start his company with several concessions and rebates provided under the law.

Table of Contents

  • What is one person company meaning?
    • Restrictions on OPC
    • The requirement for Incorporating OPC
    • Incorporation of One Person Company
    • Conversion of OPC
    • Annual Compliances

What is one person company meaning?

According to Section 2(62) of the Companies Act, 2013, One Person Company definition is a single person shareholder and listed with a private companies. There are lot’s of different between one person company vs 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 as:

  • Restrictions on members: Only natural person having the status of Indian resident and is 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 member: 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 be incorporated as a Section 8 Company.

The requirement for Incorporating OPC

Following 4 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 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 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 name make sure to check the name is available and is not registered with 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 the form, attach all the necessary documents with the form and attest the same by affixing DSC of director and practising professional who certify the same
  • In case documents and information provided in the form is correct, and ROC is satisfied with the application shall grant Certificate of Incorporation that remains valid through the life of OPC.

Conversion of OPC

Conversion of OPC into 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 private limited in two following ways:

  • Voluntary: Voluntary conversion is when the owner, upon its discretion willing to convert itself into 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 private limited compulsorily in the following situations:
  • Paid-up share capital exceeds INR 50 Lakhs; or
  • Average turnover of the preceding 3 years exceeds INR 2 Crore

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 in every 6 months. That is minimum 2 board meeting shall be conducted yearly with a gap between two meetings being 90 days or more
  • Director of OPC in 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 to 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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