One Person Company under Companies Act, 2013

Introduction

Companies Act, 2013 has recently introduced the concept of One Person Company (OPC). There is a growing inquisitiveness in the mind of many corporate professional, entrepreneurs and students as to what is this concept. In this Article, this concept has been explained, provisions relating to OPC in Companies Act, 2013, its comparison with various other types of entities, its benefits and limitation etc.

Although the concept of OPC has been recently introduced in India, similar concept already exists in many other counties including Australia, USA, and Pakistan etc.

Meaning & features of One Person Company (OPC)

OPC is a type of company wherein the company has only one person as a member this person contributes capital to the company. This person acts in different capacity of promoter, director and member. OPC structure is similar to that of a proprietorship concern without the problems generally faced by the proprietors. One most important feature of OPC is that the risks of business are limited to the extent of the value of shares held by such person in the OPC. This would enable a person to take the risks of doing business without getting the liabilities attached to his personal assets. OPC has a separate legal identity from its shareholders i.e., the company and the shareholders are two different entities for all purposes.

OPC is incorporated as a private limited company with one member and may also have at least one director. To ensure the continuity of business and safeguard the interest of different stakeholders, it is required to nominate the name of the person who shall, in the event of sole member’s death or his incapacity, manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member. A minor cannot become member or nominee of the OPC or hold share with beneficial interest. Letters ‘OPC’ to be suffixed with the name of One Person Companies to distinguish it from other companies.

Provisions relating to OPC under Companies Act, 2013

Sec.2(40) Proviso: Financial Statement of One person Company
Sec. 2 (62) Definition of One Person Company
Sec. 2 (68) Definition of Private Limited Company
Sec. 3 Formation of Company
Sec. 4 Memorandum
Sec. 12 (3) Second Proviso Registered office of Company
Sec. 92 (1) Proviso Annual return
Sec. 96 (1) Annual general meeting
Sec. 122 Applicability of Chapter VII to One Person Company
Sec. 134 (1) & (4) Financial Statement, Board’s report etc.
Sec.137 (1) Third Proviso Copy of Financial Statement to be filed with the Registrar
Sec.149 (1) Company to have Board of Directors
Sec. 152 Appointment of Directors
Sec. 173 (5) Meetings of Board
Sec.193 Contract by One Person Company

OPC vis-à-vis Sole Proprietorship

Sole Proprietorship is one of the most favoured business entities for budding entrepreneurs. The prime reasons for its popularity are – (a) absence of legal formalities for its creation; and (b) sole control over the business. Despite the above two important benefits of sole proprietorship, there are some lacunas in this form of business entity which is abhorred by many. Major lacuna of sole proprietorship is that it has no separate existence. It is devoid of the “limitation of liability” enjoyed by a private / public company or limited liability partnership.

OPC vis-à-vis Private Limited Company

Private Limited Company is another most popular business entity in India. Private Limited Company is also an incorporated entity. However, it differs from OPC on several aspects mentioned below:

1. Minimum No. of Board meeting: In case of OPC, only 2 meetings are required to be held in a year. However, in case of 1 director, no board meeting required. Only resolution needs to be recorded. While in case of Private/ Public Company, minimum 4 meetings are required to be held in a year.

2. Annual General Meeting : In case of OPC, there is no requirement of holding any general meeting.

3. Minimum No. of directors: In case of OPC, there is requirement of only 1 director.

4. Cash-flow statement: OPC need not prepare cash flow statement.

Conversion of OPC to other type of Company and vice- versa

When the paid-up share capital of OPC exceeds Rupees Fifty Lac or its average annual turnover during the relevant period exceeds Rupees Two Crore, such OPC need to mandatorily convert itself, within six months of the date of such increase into a private / public company.
Similarly, a private company having paid-up capital of Rupees Fifty Lac or less or average annual turnover during the relevant period is two Crore or less may convert itself into OPC by passing a special resolution in general meeting. No objection from its members and creditors shall precede such special resolution.