one person company – an entrepreneur friendly business organization

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One Person Company An entrepreneur

friendly business organizationCS Suryanarayana SV

Paper forUGC Sponsored National Seminar @ Mahatma Gandhi University on 20th March, 2015

[email protected] 1 March, 2015 Page 1 of 8

Entrepreneurs always look for new bundle of opportunities and glance forward to start or

convert their own ventures with a structure of organized business. If anyone wantsto set up

and register a Company, multiple persons are needed as shareholders, because the

Companies Act mandates a minimum of two shareholders in case of Private Company or

three shareholders to form aPublic Limited Company. This forces a person who would like

to take-up a venture as a sole- proprietary concern, an onerous task since it is NOT legally

recognised as a separate entity. Alternatively the lone entrepreneur may be required to find

yet another like minded person(s) with whom the business could be carried out jointly.

In order to bring significant fillip to new or existing entrepreneurs with micro or small-scale

business and to enable them carry their respective business organizations on par with

global standards, Government of India has introduced a novel concept of One Person

Company ( herein after abbreviated and used as OPC) through the Companies Act, 2013

which replaced the Companies Act, 1956 [ that was in operation for over five decades, as

one of the largest pieces of legislation ever passed by the Indian Parliament - 658 Sections

and 15 schedules ].

OPC concept in the Companies Act 2013 has opened the doors for those entrepreneurs

who are looking to set up a Company all by themselves in the name of a separate lega

entity. It is a right solution for such enterprising entrepreneurs to form, register and run a

Company with only one Member [ Shareholder ]. OPC can work like proprietorship but it

holds the status of Company and of course enjoys the bundle of benefits as a registered

Company. One Person Company form of business organization characteristics, key aspectadvantages, formation features are briefly outlined here for budding business minds as wel

as existing enterprises. Now onwards wherever the word Act is used in this paper, it is to

be taken to mean as the Companies Act , 2013.


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ORIGIN OF THE OPC

The Companies Act, 2013 (Act) introduced several new concepts and one among them is

the registration of One Person Company. This is really a star among the innovations

brought in to reality in the new Act enabling One Person Company as a company

registered under the provisions of the Act with just one member and shall have "(OPC)"

added in brackets to its name.

As part of re-codification exercise of the erstwhile Companies Act, 1956, Dr. J.J. Iran

Expert Committee, which was appointed by the Government of India, in 2005 briefly

referred to OPC in its report in a Chapter titled "Classification and Registration of

Companies". The said committee suggested multiple classification of companies such as

(i) on the basis of size; Small companies and Other Companiesand ( ii.) On the basis of

number of members: a. One person company; b. Private companies; c. Public companies

Regarding OPC, the suggestions of the Committee were thus:

"With increasing use of information technology and computers, emergence of theservice sector, it is time that the entrepreneurial capabilities of the people are given

an outlet for participation in economic activity. Such economic activity may takeplace through the creation of an economic person in the form of a company. Yet itwould not be reasonable to expect that every entrepreneur who is capable ofdeveloping his ideas and participating in the market place should do it through anassociation of persons. We feel that it is possible for individuals to operate in theeconomic domain and contribute effectively. To facilitate this, the Committeerecommends that the law should recognize the formation of single person economicentity in the form of 'One Person Company'. Such an entity may be provided with asimpler regime through exemptions so that the single entrepreneur is not compelledto fritter away his time, energy and resources on procedural matters.

The Companies Bill at various stages has accepted the recommendations of the Dr. Iran

Committee particularly with a view that OPC structure must be similar to that of a

proprietorship concern without the ills generally faced by the sole proprietors.


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Global Practice:

The concept of One Person Company is new as far as India is concerned, though such a

form of business organization has been very popular in several countries with different

names like Single Person Company / One man Company, particularly successful in China

Singapore, the United States of America, United Kingdom, Mauritius, Ireland, Bahrain

Pakistan and several European countries since a very long time now.

Indian OPC Characteristics:

The Companies Act, 2013 contains provisions enabling registration of One Person

Company so that entrepreneurs are in a position to avail the benefits of registered

companies. Act defines One Person Company or OPC as a company formed for any

lawful purpose with only one person as its member. One person company is a private

company with one person subscribing to the Memorandum of Association [ constitution of

the company ] and signing the Articles of Association [ Regulations for interna

management ] in order to comply with the requirements of the Act in respect of registrationThe Act provides that the letters (OPC) in brackets to be suffixed with the name of One

Person Company , wherever its name is printed, affixed or engraved. For example ABC

Private Limited (OPC). This is to distinguish OPC from other companies.

Privileges and Benefits identified with OPCs :

1. OPC vs. Sole Proprietorship Firm: One Person Company has an edge over sole

proprietorship firm in respect of limited liability with perpetual succession. The concept of

OPC is to restrict the liability of the promoter to the extent of investment made in OPCwhereas in case sole proprietor firm, the liability extends to the personal assets of such sole

proprietor.

2. Capital:OPC shall be started with a minimum capital of Rupees One Lakh and can have a

maximum paid up share capital of Rs. 50 lacs and average annual turnover not exceeding

Rs. 200 lacs.


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3. Directors:Minimum number of Directors required in OPC is one. However, OPC can have

maximum fifteen Directors.

4. Nomination Facility: The objective of OPC is to establish perpetuity and continuity

to the life of the company and does not end with the life of the promoter. That is why

OPC shall nominate any other natural person with his consent as his nominee in the

event of original promoter incapacity to contract or death. The name of the Nominee

shall be declare in Memorandum of Association and the Nominees written consent

shall be filed with the Registrar of Companies [ An office of Ministry of Corporate

Affairs ] at the time of incorporation along with the other documents. Nominee may

withdraw consent by giving a notice in writing to such promoter. The promoter shal

nominate another person as a new Nominee within 15 days on the receipt of the

notice of withdrawal and shall send an intimation of such nomination in writing to the

Company, along with the written consent of such other person so nominated. Any

change in Nominee particulars shall also be intimated to Registrar of Companies

The nominee shall become the Member of OPC in the event of the incapacity tocontract or death of the original promoter.

5. Dormant Company Status:OPC formed and registered for a future project or to hold an

asset or an intellectual property but has been inactive and not carrying on any business or

operation and has not made any significant accounting transactions may make an

application to the Registrar of Companies [ROC] to obtain the status as a Dormant

Company. It may again become an active OPC on an application made to the ROC along

with such documents and fees as may be prescribed.

6. Funds:Structured as an OPC instead of a proprietorship, the entrepreneur can have better

access to banking finance. Being a recognized corporate, could well raise capital from

others like venture capital financial institutions etc., thus graduating to a private limited or

public limited company.

7. Compliances:OPCs need not bother too much about compliances. Business currently run

under the proprietorship model could get converted into OPCs without any difficulty.


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8. Cost: Incorporation expenses, fee payable to Government and due to less number of

records to be maintained, the setup and administrative costs are less.

9. Financial Statements:OPC shall file a copy of the financial statements duly adopted by

its member, along with all the documents which are required to be attached to such financia

statements, within one hundred eighty days from the closure of the financial year.

10. General Meetings:Provisions relating to General Meeting of company are not applicable

to OPC. The resolutions required to be passed at the Annual General Meeting or Extra

Ordinary General Meetings of the company shall be deemed to have been passed if theresolution is agreed upon by the sole member and communicated to the company and

entered in the minutes book maintained.

11.Subsidiary:OPC can have a subsidiary but it cannot be a subsidiary to any other

holding company.

12.Global reach:OPC on registration gets the status of a separate legal entity obtains

automatic recognition in the business circle, financial hub and such an individua

promoter would be able to run the show in a better and improved manner

Incorporation of OPC will help increase international trade as many businesses al

over the world know about the one person company concept.

OPC model of corporatization

OPCs are not proprietorship concerns, hence, they give a dual entity to the company as

well as the individual, guarding the individual against any pitfalls of liabilities. This is the

fundamental difference between OPC and sole proprietorship. OPCs would provide the

start-up entrepreneurs and professionals the much needed flexibility in setting up a

business in India without losing the professional control over the business idea for the

professional.


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One person company (OPC), is a dynamic form of business organization. OPC is for

those who would like to come out of the shackles of big corporate and be independent.

OPC suits the Professional skilled persons who would desire to adopt any type of business

plan in addition to take extra risk, willingness to take additional responsibility above all

who opts personal commitment to the business. OPC form will be used by employees

turning into entrepreneurs, practicing professionals, if their professional bodies permit such

form, sole entrepreneurs, etc. Value of IPR or business viability exploration work which

consumes time, effort and money of a prospective entrepreneur / promoter (pre launch

pioneering work) can be stored in a OPC and such OPC can be a stake holder in a larger

company along with entrepreneur/promoter.

Solo entrepreneurs can present OPC as a legal entity to foreign customers who take

comfort in dealing with legal forms rather than dealing with individuals and unregistered

entities. Even Government can use this form for strategic purposes which require both

100% control of the Government from a strategic perspective and flexibility of a privateenterprise. OPC is not limited to be a Small Company and therefore can be big both in

terms of capital, business scale and managerial capabilities. OPC cannot raise equity

capital from any other person other than the One Person who is a Member of the company

and cannot issue debentures to public; There is no bar on raising funds through loan or

instruments other than securities. The legal structure around the OPC is very interesting

The concept of OPC is equally suitable for Professionals and Management Consultants

specifically from the Service Sector. They can corporatize their profession by converting the

individual practices into OPC without bargaining with other co-professionals. OPC model of

corporatization would be a much better alternative to the Limited Liability Partnership (LLP).

While each individual professional could incorporate an OPC, such person could well be a

shareholder in another private limited company or be a partner in another LLP. Severa


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OPCs could come together to form Public Limited or Private Limited Companies or LLP

thus reach out to a larger section of clients without sacrificing their individual clients.

When any Multi-National Company incorporates a Company in India, as every one knows,

one of its Indian officials or representative is given one share, that too, as a nominee of the

MNC for the simple purpose of fulfilling the legal requirement of having two or more

shareholders. In other words, the newly registered Indian company is owned 100% by the

MNC only which is in no way different than the OPC itself. OPC would legalize it.

In OPC, the business head is the decision maker, such individual is not dependent on

others for suggestions or implementation of suggestions etc., resulting in quicker and

easier decision making. The sole promoter who runs the business and hence, the question

of consensus or majority opinion etc., does not arise.

All these finer features of OPC would enable entrepreneurial minded persons to take the

risks of doing business without the botheration of litigations and liabilities getting attached

to the personal assets.

When do OPC loses its status?

OPC mandatorily and automatically converted itself into a public company or a private

company if :

(1) paid up share capital of OPC exceeds fifty lakh rupees, or

(2) on the last day of the relevant period during which its average annual turnoverexceeds two crore rupees

In the above cases, OPC shall within 6 months convert itself into a public company or a

private company with minimum number of directors and members.


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OPC has impact in Indian Entrepreneurship:

After introduction of OPC in India from 2014 year onwards, the author has perceived tha

many professionals viz., Management Consultants, Company Secretaries, Chartered

Accountants, Cost Accountants, Doctors, Engineers, IT professionals, Architects, Interio

Decorators, Fashion Designers are opting OPC as a startup. . It goes without saying that

small and medium businesses such as hotel, laundry, provision stores, fruit mart and many

other undertakings are taking advantage of the OPC and they have formed OPC and are

operating. The name board is normally seen the name of the undertaking followed by the

word OPC denoting that it is a One Person Company.

In Conclusion:

The formation of OPC is very simple and also running a company does not require much

compliance and it is very easy. Since India is moving forward by adopting the global best

practices, the following measures would help the enterprises entrepreneurs and

professionals in the long run:

(i) further simplified procedure of forming and running the OPC with minimum

compliance requirements.

(ii) special incentives like income tax concessions and indirect tax holiday schemes with

reduced annual fee, filing fees & stamp duty payable to Government for OPCs,

(iii) look into the possible grey areas in order to protect gullible investors, traders and

such others who are required to do business with an OPC.

(iv) through the Rules, OPCs should be restricted to see that personal transactions are

not to be mixed up with that of the OPC.(v) include separate Chapter in Companies Act 2013 to keep all provisions at a place

relating to One Person Companies.

one person company – an entrepreneur friendly business organization

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