One Person Company: Concept, Features and Incorporation

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Introduction 

The Companies Act of 2013 addresses some of the gaps in the Companies Act of 1956. It makes major amendments to laws relating to governance, e-management, compliance and regulation, transparency and norms, auditors, and mergers and acquisitions, as well as new concepts such as one-person companies, small businesses, inactive businesses, class action cases, registered valuers, and Corporate Social Responsibility. The Companies Act of 2013 introduced the idea of a One-Person Company(OPC) in India. The idea opens up new horizons of growth opportunities, with exciting prospects for sole proprietorships and entrepreneurs who can profit from limited liability as well as the profit of becoming their legal entity. OPC is intended to help individuals who work for themselves and in a variety of small businesses. The Companies Act of 2013 has a unique function. It would provide the young entrepreneur with all of the advantages of a private limited company, including access to credit, bank loans, limited liability, legal security for business, market access, and so on, all under the name of a separate legal entity. A single entrepreneur can run his company independently. At any given time, it can only have one member.

The OPC can instil trust in small business owners.” 

One person Company – Concept 

One Person Company (OPC) is classified as a company with only one member under Section 2(62) of the Companies Act, 2013, which states: “One person company means a company with only one member .”The One Person Company (OPC) is distinguished by the fact that

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→ It has only one member/shareholder.

→ Only a Private Company can register as an OPC.

→ OPC may be a limited-by-shares company, a limited-by-guarantee company, or an unrestricted company.

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→ AGM (Annual General Meeting) is not needed for a one-person company every year. → One Person Company’s financial statements may or may not contain a cash flow statement.

→ The Financial Statements/Report directors can be signed by only one director.

Salient Features 

→ A-One Person Company can only be established by a natural person who is an Indian citizen and a resident of India.

→ If the original shareholder dies or becomes incapacitated, the shareholder shall appoint another individual to become the new shareholder.

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→ A minimum of one director is required; the sole shareholder may also be the sole director.

A maximum of 15 people can work for the company.

Section 2(62) of the Companies Act, 2013

→ The following conditions must be met by an OPC restricted by shares: ∙ A minimum paid-up capital of INR 1 lakh is required.

∙ Limits the ability to sell the company’s shares;

∙ Prohibits any public invitations to subscribe to the company’s securities. → An OPC is expected to have a legal identification by naming a title in which the business’s activities may be carried out.

→ Wherever the company’s name is attached, utilized, or carved, the words “One Person Company” should be stated beneath it.

Process of OPC Incorporation

The method of forming a one-person company is very straightforward :

⮚ A Director Identification Number (DIN) and a digital signature certificate must first be obtained by the sole shareholder.

⮚ Then he should apply for the company’s name.

⮚ After that, he must obtain the nominee’s approval in the specified forms.

⮚ Then he must file the permission with the final registration forms, as well as the Memorandum and Articles of Incorporation and other documents required.

⮚ He would then obtain the final certificate of incorporation from the registry of companies.

⮚ He can now start doing business underneath the label.

Advantages of OPC

  1. The desire for personal freedom, which enables a professional skilled person to pursue his or her preferred company.
  2. Passion and execution of a business plan are motivated by a person’s personality. 3. The urge of the entrepreneur to take additional risks and accept additional responsibilities.
  3. Personal contribution to a company that is the person’s sole idea and dear to his heart. 5. Even though it is owned by individuals, OPCs are a distinct legal entity with the same legal status as any other registered corporation.

Disadvantages of OPC 

  1. The number of members of a one-person company may be as low as one or as high as one.
  2. Only small businesses should use OPC. OPC will have a maximum paid-up capital of Rs.50 lakhs and a maximum turnover of Rs.2 crores.
  3. A one-person corporation cannot engage in non-banking financial investment practises, such as investing in the shares of another company, or be incorporated or transformed into a company under Section 8 of the Companies Act.
  4. Since the definition of a one-person company is not recognised under the IT Act, such businesses would be taxed in the same tax bracket as other private businesses. 5. A one-person company’s basic income tax rate is 30%, which can result in a higher tax rate than an individual’s income tax slab rates.
  5. Unlike sole proprietorships, one-person businesses must register with the registrar of companies under the Companies Act of 2013.
  6. This would include out-of-pocket expenses for government commissions and consulting fees that you will have to pay to your Chartered Accountant or Company Secretary.
  7. NRIs are not permitted to form a one-person company.

Sole Proprietor vs One Person Company 

People sometimes mix up the terms sole proprietor and one-person business (OPC). The sole owner of both forms of companies is the source of the misunderstanding. Both a sole proprietor and an OPC have a single owner, but the legal framework of these entities differs. A sole proprietorship is India’s oldest form of corporation, while an OPC is a brand-new term created by the Companies Act of 2013. To put it another way, OPC is the new incarnation of the sole proprietorship model.

Conclusion 

“The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. But no price is too high to pay for the privilege of owning yourself.” – Friedrich Nietzsche

The concept of OPC is similar to that of a “one-man army.” The enforcement pressure is indeed very low, and the members’ liability is very small, and it is an extra advantage. OPC is expected to benefit individuals working for themselves and in a variety of small businesses. It is a notable feature of the Companies Act of 2013, but it has been criticised for having unnecessary bureaucratic formalities and a high tax burden. Furthermore, this definition is viewed as superfluous because India already has the Limited Liability Partnership Act, 2008, which restricts the liability of partnership members.

Ultimately, any decision on the business arrangement to be chosen would be made on a case-by-case basis, based on the unique needs and conditions of a particular company.


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