A one-person company (OPC) is best suited to those who wish to be solo entrepreneurs. Sole proprietorships, interestingly, offer a similar benefit. However, unlike sole proprietorships, an OPC offers limited liability and therefore status of a separate entity, together with an improved standing within the market. One Person Company was enforced in India through the Companies Act 2013. Section 2(62) defines OPC as a Company that has just one person as a member. He’s the shareholder and also the Director at the same time. One person company (OPC) means a company formed with just one (single) person as a member, unlike the standard manner of getting a minimum of two members. So, an OPC is effectively a company that has just one shareholder as its member. In an exceedingly Private Company, a minimum of two Directors and two Members are required whereas in a Public Company, a minimum of three Directors and a minimum of seven members. A single person couldn’t incorporate a Company previously. Before the enforcement of the Companies Act, 2013, a single person couldn’t establish a company. If an individual wanted to establish his business, he/she could opt just for a sole proprietorship as there had to be a minimum of two directors and two members to establish a company.
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Advantages Of OPC
Legal Status
The OPC obtains a separate legal entity status from the member. The separate legal entity of the OPC gives protection to the individual who has combined it. The liability of the member is limited to his/her shares, and he/she isn’t personally liable for the loss of the company. Hence, the creditors can take legal action against the OPC and not the member or director. An OPC will have its own separate property because it gains its own identity and functions as a separate legal entity. The OPC will become the owner of its assets, and therefore the members won’t have any insurable rights within the assets of the company.
Transferability Of Shares:
OPC has just one shareholder. The difficulty of transferring a part of the share doesn’t arise in any respect because if it’s done, the company will cease to be a “one person” company. Transferring all the shares is also not practicable as it’ll change the complete structure of the company because the owner of the company is changing. The issue has not yet been addressed, and interpretation of the law may provide us with the reason that in an OPC, transfer of share isn’t allowed.
Easy To Obtain Funds
Since OPC is a private company, it’s easy to go for fundraising through venture capitals, angel investors, incubators, etc. The Banks and therefore the Financial Institutions prefer to grant loans to a company instead of a proprietorship firm. The legality of this sort of business, and also the perpetual succession clause, makes it popular among banks and financial institutions. Thus, it becomes easy to get funds.
Fewer Compliances
The Companies Act, 2013 provides certain exceptions to the OPC with respect to compliances. The OPC needn’t prepare the cash flow statement. The company secretary needn’t sign the books of accounts and annual returns and be signed only by the director.
Easy Incorporation
It’s easy to include OPC as just one member and one nominee are required for its incorporation. The member may be the director also. The minimum authorized capital for including OPC is Rs.one lakh but there’s no minimum paid-up capital necessity. Thus, it’s easy to incorporate as compared to the other kinds of companies.
Easy To Manage
When one person can establish and run the OPC, it becomes easy to manage its matters. It’s easy to form decisions, and also the decision-making process is quick. The standard and special resolutions will be passed by the member easily by entering them into the minute book and signed by the sole member. Thus, running and managing the company is simple as there won’t be any conflict or delay within the company.
Perpetual Succession
The OPC has the feature of perpetual succession even after there’s only 1 member. While incorporating the OPC, the single-member has to appoint a nominee. Upon the member’s death, the nominee will run the company within the member’s place. The Companies Act also provides for an individual, nominated by the stakeholder, to require over the wheels of the company in the event of the death or inability of the said stakeholder. Furthermore, this permits the OPC to own never-ending life beyond that of the founding director.
| Factor | OPC | Sole Proprietorship | |
| Distinction in ownership | Owner & business are considered as 2 separate entities | Owner & business is defined as a single entity | |
| Liability | Limited to his/her investment | Unlimited liability | |
| Taxation | Registered as a Private limited company & hence taxed under Income Tax Act for Private companies | Treated as owner’s individual income | |
| Members | Only 1 member or shareholder | Only 1 proprietor | |
| Profit/Loss | Profit/Loss belongs to the single-member | Profit/Loss to the single proprietor | |
| Management | Easy to manage | Easy to manage |
Who can be a member of an OPC?
Only an individual who is an Indian citizen and who resides in India is eligible to act as a member and a nominee of an OPC. For the purposes mentioned above, the term “resident of India” means a person who has stayed in India for a period of at least 182 days during the last fiscal year.
Who can’t form an OPC?
Minors, foreigners, citizens, Non-Resident, and contractually incompetent persons are not eligible to become a member.
Can a person be a member of multiple OPCs?
No, only one person can be a member of only one OPC.
Conclusion
The owner is completely the most important authority of OPC. Registering this type of company brings a great number of benefits to OPC. An OPC can only be registered as a Limited Liability Company. All the provisions applicable to private companies will exist on OPC unless it is excluded by relevant law or regulation. Finaxis shall be at your clearance if you want to establish/incorporate any company. If you have any queries/questions, please feel free to contact us.
