One Person Company (OPC)

What is One Person Company (OPC)?

One person company, or otherwise called as OPC is a company founded with just one person as the member, which is a private company in nature.

Here, member refers to the subscriber to the Memorandum of Association (MoA), of the company. The concept aimed to promote entrepreneurship and corporatization of business.

Such a company is either limited by share or guarantee or unlimited company. However, if the company is limited by shares it has to fulfil the following requirements.

  1. Minimum paid-up capital of Rs. 1,00,000.
  2. Restriction on the right to transfer shares.
  3. Prohibits inviting the general public to subscribe for the shares of the company.

Characteristics of OPC

The points will state the characteristics of one person company (OPC):

  • Legal Identity: The OPC should have a specific name which acts as its legal identity, as well as all the business activities are carried on, under that name.
  • Member: To form an OPC, it requires only one person as a member and that company will be regarded as a private entity.
  • Restriction: The person who creates a one-person company is not eligible for incorporating multiple one-person companies. This means that only one, one person company can be formed by that person.
  • Extension: The term “one person company” has to be stated below the company’s name, wherever the name is used, engraved or affixed.
  • Memorandum: The memorandum of OPC has to specifically indicate the name of a person (nominee) with a written acknowledgement in the stipulated format, who will continue as a member, at the time of death or incapacity of the subscriber.
  • Nominee: The nominee also is not allowed to become the nominee of more than one OPC.
  • Change of Name of Nominee: The member of the one-person company can change the name of the nominee any time. For which he/she needs to give notice to the company and the company has to furnish it with the Registrar of Companies (RoC).
  • No perpetual succession: As the number of members in an OPC is only one, the death of the member may result in dissolution. Further, it is up to the nominee only to accept or reject to become the sole member of the OPC. However, this characteristic is different from the other companies, as they have perpetual succession.
  • Directors: An OPC should have at least one director, which is obviously the member and can have a maximum of fifteen directors.
  • Conversion: One person company cannot be converted or incorporated as a company formed to promote commerce, art, sports, education, environment protection, social welfare, etc. In specific circumstances, such a company can be converted into a private or public company.

One person company are not permitted to undertake Non-banking financial investment services, involving investment in shares or debentures or other companies. Further, it has to intimate the registrar about every contract the company has entered into, as well as stated in the minutes of the board meeting, within 15 days from the date of approval by the board.

Exemptions to OPC

The concept of one person company has emerged to encourage small businesses and entrepreneurs. So, the government provides a number of exemptions and thus have lesser legal formalities to comply with. These exemptions are:

  1. One Person Company need not prepare a cash flow statement.
  2. If one person company is not having a company secretary, then the company’s annual return can be signed by the director.
  3. There is no compulsion as to holding an Annual General Meeting.

Advantages of OPC

  • Limited liability protection to directors and shareholders
  • Full-fledged control of the company with the sole owner
  • Tax flexibility and savings
  • Lesser legal formalities
  • Easy management
  • Easy availability of credit from banks and financial institutions

Cessation of OPC Status

As we all know, there are a number of advantages of OPC, as to legal compliance, however, there are certain circumstances when the OPC status can be ceased, these are:

  1. Paid-up share capital crosses 50 lacs or
  2. The average annual turnover of the concerned accounting period – the period immediately preceding three financial year crosses 2 crores.
  3. Announcement for an increase in the minimum limit has to be filed in the relevant form.

OPC is the most common type of legal entity for micro-businesses or startups, at the budding phase, which is commenced, managed and operated by only one person.

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