One Person Company
What is One Person Company?
Introduction of One Person Company (OPC).
"One Person Company" is a new concept introduced by the Companies Act 2013. As the name suggests, a one person company is formed with only one person as its member. Since such companies have only one member, these companies enjoy certain privileges or exemptions as compared to other companies.
Section 2(62) defines a One Person Company as "One Person Company" means a company which has only one person as a member.
A One Person Company can be incorporated for any lawful purpose by one person
Only natural person can incorporate One Person Company, and must be an Indian citizen who has resided in India for at least 182 days during the previous financial year.
A person can incorporate maximum 5 one person companies.
One Person Company may have only one director.
The words "One Person Company" must be mentioned in brackets below the name of the company.
Exemption is available from holding Board Meetings (in case of only one director) and General Meetings.
Regulatory Compliance and relaxations for a One Person Company
The definition of "private company" under section 2(68) of the Companies Act, 2013 includes One Person Company, therefore an OPC will be required to comply with provisions applicable to a private limited company. However, OPC's have been provided with additional exemptions to reduce the compliance related burden. Some of the major relaxations in terms of compliance for a One Person Company include:
One Person Company's can have just one Director.
OPC's are not required to prepare cash flow statement as a part of financial statement.
OPC's which do not have a Company Secretary can have the annual return signed by a Director of the Company.
OPC's are not required to hold Annual General Meetings.
Though OPC's are not required to hold Annual General Meetings, an OPC must conduct at least 1 meeting of the board of directors in each half of a calendar year with a gap of at least 90 days between the 2 meetings. For OPC's having only 1 director, the provisions of section 173 (Meetings of board) and section 174 (Quorum for meetings of board) will not apply.
HOW IS AN OPC DIFFERENT FROM SOLE PROPRIETORSHIP
The concept of OPC allows a single person to run a company limited by shares, and Sole proprietorship means an entity where it is run and owned by one individual and where there is no distinction between the owner and the business. The distinction between both the structures is as follows:
Limited Liability - Fundamentally the basic difference between a sole proprietorship and an OPC is the way and manner in which the liability is treated in an One Person Company. OPC is different from sole proprietorship because it is a completely separate entity and that is the distinction between the promoter and the company. The liability of the share holder will be limited to the unpaid subscription money in his name. On the other hand the liability in a sole proprietorship, the person/owner is alone liable for the claims which will be made against the business.
Tax Bracket - Though the concept of an One Person Company has been incorporated in the Companies Act, 2013 but the concept of same does not exist in tax laws as yet, as a result an OPC can be put in the same bracket of taxation as other private companies. According to Income Tax Act, 1961 a private limited company is under the bracket of 30% on total income with an additional surcharge of 5% if the income exceeds 10 million with an addition to 3% of education cess.
Succession - In an One Person Company there is a nominee designated by the member. The nominee which will be a Natural Born citizen of India and who resides in India. The nominee shall in the event of death of the member become a member of the company and will be responsible for the running of the company. But in the case of sole proprietorship this can only happen through an execution of WILL which may or may not be challenged in the court of law.
Benefits of One Person Company
An One Person Company has multiple advantages when compared to a Proprietorship or a Private Limited Company. An OPC provides limited liability to entrepreneurs whereby the liability of the member. Further, since OPC's are a separate legal entity it also has the feature of perpetual succession, making it easier for entrepreneurs to transfer ownership and raise capital. The above benefits are not available for a Proprietorship. When compared to a Private Limited Company, an OPC has much lesser compliance burden making it an ideal business structure for small businesses.