The concept of One Person Company in India was introduced under the Companies Act, 2013 to promote entrepreneurship and facilitate the expansion of an individual’s business by providing them with a formal business structure to start their ventures that offer the benefits of limited liability and perpetual succession while allowing them to operate as a single-Shareholder entity. Such an entity not only enjoys all the privileges of an enterprise but also has been granted various exemptions of complex legal compliances. The introduction of One Person Company in the legal system is a move that would encourage the corporatization of micro-businesses and entrepreneurship.
Definition of One Person Company
A one-person company in India refers to a business structure where a single individual acts as both the shareholder and director. This setup allows for streamlined decision-making and operation, with the option to appoint up to 15 directors if necessary. By adopting the One Person Company model, entrepreneurs can enjoy the advantages of limited liability, separate legal entity status, and access to certain tax benefits, making it an appealing choice for solo business owners seeking the perks of a private limited company without the need for additional shareholders.
Features of One-Person Company
One Shareholder:
- The sole Shareholder of an OPC can act as both a director and a shareholder of the company.
- A person can be a Shareholder of only one single (OPC).
Eligibility:
- Only a natural person, who is an Indian citizen and resident in India can incorporate an OPC or be its Shareholder.
- No minor can become a Shareholder or nominee of an OPC or hold a share with any beneficial interest in the company.
Nominee:
One nominee must be appointed at the time of incorporation who will take over the position of the Shareholder in case of his death or incapacity to contract. The name of such a nominee must be specified in the Memorandum of Association of the OPC. The sole Shareholder of an OPC can by writing to the OPC, change the elected nominee.
Distinct legal identity:
A fundamental feature of an OPC is its separate legal entity. As a separate legal entity, the company is recognized independently of its Owner / Shareholder.
Perpetual Succession:
Ensuring continuity beyond the founder’s lifetime is a key aspect of the OPC concept. In the event of the owner’s demise or incapacity, the nominee director steps in, ensuring the continuation of the business. However, in case the nominee decides not to continue the business operations and OPC, he/she can voluntarily opt for a strike-off.
Centralized Decision-making Authority:
With a singular ownership structure, OPCs empower the sole owner with centralized decision-making authority, facilitating agile responses to market dynamics and strategic imperatives. This autonomy enhances operational flexibility and accelerates responsiveness to emerging opportunities.
Privileges of One Person Company
- The owners retain full control over decision-making without the need for external shareholders or directors.
- There is no complex compliance work in the case of an OPC.
- The holding of an annual general meeting is not required.
- The financial statement of an OPC may not include a cash flow statement.
Difference between One Person Company and a Sole Proprietorship
A One Person Company and a sole proprietorship may seem similar but are quite different in various aspects:
One Person Company:
A personal company is a distinct legal entity that provides a unique structure for businesses, allowing single individuals to establish and run a company. One significant difference lies in the liability of the shareholder or director, as it is limited to the extent of their shareholding in the company. This means that the personal assets of the shareholder are generally not at risk, offering a level of protection. Additionally, OPC enjoys perpetual succession, meaning its existence is not affected by the death or incapacity of its shareholders. It can continue to exist irrespective of changes in ownership, providing a stable and enduring business structure.
Sole Proprietorship:
A sole proprietorship, on the other hand, is a business structure where a single individual owns and manages the entire business. The key distinction lies in the unlimited liability of the owner, meaning their assets can be used to settle business debts and obligations. Unlike an OPC, a sole proprietorship does not have a perpetual existence. It ceases to exist upon the death or decision of the owner to terminate the business, making it a more straightforward but less enduring option compared to the perpetual succession offered by an OPC. The choice between an OPC and a sole proprietorship often depends on factors such as liability considerations, business goals, and the desire for perpetual existence.
Conclusion
OPC is very beneficial for someone who wants to incorporate a formal business and run it single-handedly. There has been a surge in the growth of OPC in India because of its attractive features. This has opened new doors for entrepreneurs facilitating rapid growth in the business market.
At KDP Accountants, we assist entrepreneurs in thoroughly evaluating the advantages and drawbacks, enabling them to make well-informed choices regarding OPC company registration. Seeking professional guidance from our team of experts during the registration process can further enhance the entrepreneur’s understanding. Through our comprehensive approach, we help streamline the OPC application process, ensuring compliance and a smoother journey toward building a successful OPC.
Summary of the services we provide:
- Incorporation of OPC.
- Obtaining various registrations.
- Taking care of all the necessary compliances.
- Statutory filings.
The above note is subject to further study and clarification. This note does not form an opinion from our end and before taking any decision based on the above, it is recommended to consult our experts on the subject. Kamdar, Desai & Patel will not be liable for any damages (including, without limitation, damages for loss of business projects, or loss of profits) arising in contract, tort, or otherwise from the use of or inability to use this article or any of its contents, or from any action taken (or refrained from being taken) as a result of using this article or any such contents.
