Traditionally, minimum 2 members were required to register a Company in India and due to this many small businesses in India were functioning as sole proprietor only. There are various disadvantages of running a sole proprietor business major being unlimited liability. In India, introduction of OPC was given in the Dr J.J Irani Committee report dated May 31, 2005. It was introduced off-late in India to allow single member businesses popularly known as ‘sole proprietor’ to be registered as ‘One Person Company’ (OPC).
One person company (OPC) means a company formed with only one person as a member, unlike the traditional manner of having at least two members to form a company. OPC is totally owned by one person. The same member can become director of the company and manage the company. OPC may have more than one director also for smooth and efficient management.
Benefits of an OPC
Most of the benefits available to the Private Companies are also available to the OPC like Limited Liability, Separate Legal Entity, Separate property, Transferability of shares, Credibility, Perpetual succession etc. In addition to the above benefits, there are other benefits also like OPC not need to conduct board meetings if there is only one director and general meetings.
Latest Announcements in budget with regard to OPC
According to the Companies Act, 2013, if the paid-up share capital limit of the OPC exceeds ?50 lakh or turnover exceeds ?2 crore, then the company shall lose its status as an OPC and shall be required to compulsorily convert to either to a private company or public company within 6 months. The budget has changed this requirement and now OPCs will be allowed to grow without any restriction on paid up capital and turnover, allowing conversion into any other type of company at any time. Budget also reduces the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days, and allow also non-resident Indians to incorporate OPCs in India. All these provisions will come into force w.e.f 1st April, 2021.
Formation of One Person Company
A company may be formed for any lawful purpose by one person, where the company to be formed is to be One Person Company that is to say, a private company by subscribing his name to a memorandum and complying with the requirements of this Act in respect of registration.
Who can form a One Person Company?
Only a natural person who is an Indian citizen and whether resident in India or otherwise shall be eligible to incorporate a One Person Company. A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a One Person Company. So, a natural person can form only 1 OPC and simultaneously can be nominee of 1 OPC.
For the purposes of this rule, the term "resident in India" means a person who has stayed in India for a period of not less than one hundred and twenty days (With effect from 01st April, 2021)during the immediately preceding financial year.
Can foreigners incorporate a One Person Company?
No. Only Indian citizens and resident Indians can form an OPC. If person is resident in India for 120 days or more in a previous year, he is eligible to incorporate an OPC.
If foreigners are resident Indian then they are allowed to incorporate an OPC?
No. Rule 3(1) of the Companies (Incorporation) Rules, 2014, states that only a natural person who is an Indian citizen and whether resident in India or otherwise can incorporate an OPC. It means both the conditions must be fulfilled i.e first is Indian citizen and second is resident Indian. For residency criteria, days are lowered from existing 182 days to 120 days.
Nomination by the Member
The subscriber to the memorandum of a One Person Company shall nominate a person, after obtaining prior written consent of such person, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of that One Person Company. The name of the nominee shall be mentioned in the memorandum of One Person Company and such nomination in Form No.lNC-3 shall be filled in Form SPICe and with the Registrar at the time of incorporation of the company along with its memorandum and articles.
Withdrawal of Nomination
The person nominated by the member of a One Person Company may, withdraw his consent by giving a notice in writing to such sole member and to the One Person Company.
Appointment of new nominee
In case an existing nominee withdraws his/her consent, the sole member shall nominate another person as nominee within 15 days of the receipt of the notice of withdrawal. The company shall within 30 days of receipt of the notice of withdrawal of consent file with the Registrar, a notice of such withdrawal of consent and the intimation of the name of another person nominated by the sole member in Form No INC.4 and the written consent of such another person so nominated in Form No.INC.3.
Death or incapacity of a member
Where the sole member of OPC ceases to be the member in the event of death or incapacity to contract and his nominee becomes the member of such OPC, such new member shall nominate within 15 days of becoming member, a person who shall in the event of his death or his incapacity to contract become the member of such company, and the company shall file with the Registrar an intimation of such cessation and nomination in Form No INC.4 within 30 days of the change in membership and with the prior written consent of the person so nominated in Form No.INC.3.
Conversion of Private Company into OPC
There are many private companies in India which are controlled by single person only but due to the requirement of having minimum 2 members, such companies are functioning as a Private Companies. Earlier, due to capital and turnover restrictions for an OPC, such companies were never think to convert themselves in an OPC. Such Private companies are need to comply with so many compliances like Conducting Board Meetings and General Meetings, Maintaining statutory registers so on and so forth but now such companies can convert themselves in an OPC and take the benefits available to an OPC.
Process for Conversion of Private Company into One Person Company
1. Convene Board Meeting
- To get approval of Board of Directors for Conversion of Private Company into One Person Company (OPC);
- To Fix date, time and place for holding General meeting (GM) to get approval of shareholders, by way of Special Resolution;
- To approve notice of GM along with Agenda and Explanatory Statement to be annexed to the notice of General Meeting.
2. Convene General Meeting and pass the Special Resolution and approve alteration in MOA and AOA
3. File e-form MGT-14 with the following attachments
- Certified True copy of Special Resolution alongwith explanatory statement?
- Altered memorandum of association?
- Altered Articles of association.
4. File Application for Conversion in e-form INC-6 with the following attachments
- Altered Memorandum of Association
- Altered Articles of Association
- Copy of duly attested latest audited financial statement
- Copy of board resolution authorizing giving notice
- Affidavit confirming that all the members of the company have given their consent for conversion
- Copy of minutes, list of members and list of creditors.
- Copy of NOC of secured creditors.
- Consent of the nominee in Form INC-3
- Copy of PAN card of the nominee and member
- Proof of identity of the nominee and member
- Residential proof of the nominee and member
The latest amendments introduced in the budget of 2021 will incentivize the incorporation of One Person Companies in India. It will also incentivize the conversion of Private Companies into an OPC due to withdrawal of capital and turnover restrictions. However, there are limitation of OPC too like they can’t issue shares to other members or outsiders. Hence, those entrepreneurs who are dependent on self-finance can choose to opt for an OPC.