The concept of One Person Company in India was introduced through the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a One Person Company (OPC) is that there can be only one member in an OPC, while a minimum of two members are required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership (LLP). Similar to a Private Limited Company, a One Person Company is a separate legal entity from its promoter, offering limited liability protection to its sole shareholder, while having continuity of business and being easy to incorporate.
Though a One Person Company allows a lone Entrepreneur to operate a corporate entity with limited liability protection, an OPC does have a few limitations. For instance, every One Person Company (OPC) must nominate a nominee Director in the MOA and AOA of the Company – who will become the owner of the OPC in case the sole Director is disabled. Also, a One Person Company must be converted into a Private Limited Company if it crosses an annual turnover of INR 2 crores and must file audited financial statements with the Ministry of Corporate Affairs at the end of each Financial Year like all types of Companies. Therefore, it is essential for the Entrepreneur to carefully consider the features of a One Person Company before incorporation.
The entrepreneurs who on their own are capable of starting a venture should not be made to do it through an association of persons, and should be able to create a single person economic entity in the form of ‘One Person Company’. Further, it was also suggested that such an entity may be provided with a simpler regime through exemptions so that the single entrepreneur is not compelled to fritter away his time, energy and resources on procedural matters. This led to the introduction of “One Person Company” in the Companies Act, 2013.
Benefits of One Person Company
Till the introduction of One Person Company in India, the Limited Liability and Continuous Existence feature was only available to an association of persons such as a Private Limited Company or Limited Liability Partnership or a Limited Company. With the introduction of One Person Company, the limited liability and continuous existence feature is now also available for One Person Company, which is an entity with just one member. As One Person Company has just one member, it is necessitated by the law for the single member of the Company to designate another person in the Memorandum of Association, who on the event of subscriber’s death or incapacity shall become the person to contract. This mechanism provides an adequate safeguard to ensure continuous existence of the entity even in case of incapacitation of the single member.
All companies in India are required to hold an annual general meeting each year, in addition to any other meetings and not more than fifteen months should elapse between the dates of subsequent annual general meetings. One Person Company is exempt from holding an annual general meeting or extraordinary general meetings. The resolution signed by the single Director and entered into the minutes book is sufficient, in lieu of a General / Extraordinary General Meeting.
Every company in India is required to prepare and file financial statements that includes balance sheet, profit and loss account, cash flow statement, statement of changes in equity and explanatory notes. In case of One Person Company, cash flow statement is not required.
Unlike a private limited company, a one person company has certain restrictions associated with its incorporation. Hence, before starting an OPC registration, its essential to understand the constraints and ensure the promoter is eligible as per the Companies Act to register a OPC.
Thus, a one-person company can be formed by an Indian citizen who has his/her presence in India for at least 182 days during the immediately preceding calendar year. A person can incorporate not more than one OPC. Finally, an OPC is prohibited from having a minor as its member.
The rules for incorporation of one person company requires that the sole member of a One Person Company should include the name of a nominee in the Companies MOA, who will undertake the entity after the expiry or incapacity of the former. Moreover, the document must contain the written consent of the nominee, which must also be filed with the Registrar during incorporation along with the MOA and AOA.
The nominee is entitled to withdraw his/her consent, in which case the sole member is required to nominate another member as a legal heir within 15 days of the notice of withdrawal. The nomination of new personnel must be intimated to the Company through a written consent in Form INC-3. The Company, in turn, is required to file the notice of withdrawal of consent along with the intimation of the new nominee with the Registrar in Form INC 4.
The sole member of a ‘One Person Company’ is empowered to change the nominee of the Company for any reason whatsoever, by providing notice in writing to the Company. Again, the new nominee must consent to the nomination in Form INC 3, and the Company must file the notice of change and consent of the nominee with the Registrar along with the applicable fee, within 30 days of receiving the intimation of change.
If a nominee becomes in-charge of the one person company due to the cessation of the original member’s term owing to the death or incapacity of the latter, the new member must appoint a nominee as a replacement.
If a One Person Company or an officer of such Company is not compliant with the specified regulations, the entity or the officer will incur penalties which could be as high as Rs 10,000. Further, the penalty will be increased by a fine of Rs 1,000 for each day of default.
The process for incorporation of a One Person Company can be divided into four steps as under:
Digital signature certificate must be obtained for the sole promoter and the nominee for processing the incorporation. Application for DSC would require passport size photos of the applicant, identity proof and address proof.
In parallel to the Digital Signature applicaiton, the application for name reservation can be submitted to the MCA. Name approval applications are processed by the MCA in 24-72 hours. The name suggested must conform to the naming standards, and the name of the OPC must end or include the words (OPC).
After obtaining name approval, incorporation application can be filed to the MCA with signed Memorandum of Association (MOA) and Articles of Association (AOA). Further, the identity proof, address proof and residence proof of the member and nominee would be required. In addition to the MOA, AOA, identity proof, address proof, other incorporation documents like affidavits and declaration of the sole promoter must be submitted. Further, the consent of the nominee director must also be attached in Form INC-3.
On filing for incorporation, approval is granted by the Registrar of Companies (ROC). In case there are any issues with the documents submitted, the application for incorporation can be resubmitted.
Once the incorporation certificate is obtained, the OPC would initiate the process for bank account opening. Once the bank account is opened, the promoter must deposit the amount mentioned in the MOA of the Company.
Once, the equity capital is infused into the Bank’s current account; the Company can file for the commencement of business with the MCA. Commence of Business certificate must be obtained with 180 days of incorporation to avoid a penalty.
Finally, In case notice of the situation related to registered office was not filed during incorporation, it must be filed after incorporation within 30 days. Documents required for filing INC-22 are:
A proof that the Company is allowed to use the address as the registered office of the Company if the same is owned by any other entity or Person and is not taken on lease by Company