Table of Contents

Introduction ................................................................................................................................ 2

Origin of OPC ............................................................................................................................ 3

Meaning and characteristics....................................................................................................... 5

Process of incorporation ............................................................................................................ 7

Opc and sole proprietorship ....................................................................................................... 8

OPC and company ..................................................................................................................... 9

Conversion ............................................................................................................................... 11

Analysis.................................................................................................................................... 12

Conclusion ............................................................................................................................... 13

References ................................................................................................................................ 14
 Introduction
The introduction of OPC in the legal system is a move that would encourage corporatization
of micro businesses and entrepreneurship with a simpler legal regime so that the small
entrepreneur is not compelled to devote considerable time, energy and resources on complex
legal compliances. This will not only enable individual capabilities to contribute economic
growth, but also generate employment opportunity. One Person Company, as the name
suggests, means a company which has only one person as a member and where legal and
financial liability is restricted to the company only and not to that person.

One Person Company of sole-proprietor and company form of business has been provided with
concessional /relaxed requirements under the Companies Act, 2013. With the implementation
of the Companies Act, 2013, a single national person can constitute a Company, under the One
Person Company (OPC) concept.

Single member company emerged and developed rapidly in recent years, for the reason of their
strong economic, political and legal theoretical basis. As a result, the author here, digs into
their emergence and development from a social and historical point of view. It is helpful to
encourage investment, develop economy and facilitate employment. Compared with ordinary
types of companies, Single Member Companies' legal characters lie in the singularity of
shareholder and the particularity of its corporate governance structure1. Thus it increases the
possibility for the single shareholder to abuse the rights and damage the interests of companies’
creditors. In order to protect the company's creditors, it is necessary to regulate single member
company strictly and set up integrated creditors protection rules

1
Journal of Politics and Law, para 1, Vol. 5, No. 3; 2012, www.ccsenet.org/jpl
 Origin of OPC
United Kingdom

Section 7 of the UK Companies Act, 2006 deals with method of forming company. It provides
that - (1) a company is formed under this Act by one or more persons— (a) subscribing their
names to a memorandum of association (see section 8), and (b) complying with the
requirements of this Act as to registration (see sections 9 to 13). (2) A company may not be so
formed for an unlawful purpose

United States of America

In USA several States permit the formation of a single member Limited Liability Company
(LLC).

European Union

In December 1989 the Council adopted the Twelfth Company Law Directive in order to
introduce a single-member company throughout the Community. As the main task of the
Directive could be defined creating a legal instrument which allows the limitation of liability
of the individual entrepreneur in all the member states at the same way

The Government of India constituted an Expert Committee on Company Law on December 2,

2004, under the Chairmanship of Dr. J. J. Irani to make recommendations on various issues of
Company Law. The Irani expert committee recommended the formation of OPC for the very
first time in 2005. The Committee expressed the view that the law should recognize the
potential for diversity in the forms of companies and rather than seeking to regulate specific
aspects of each form, seek to provide for principles that enable economic inter-action for wealth
creation on the basis of clear and widely accepted principles. Regarding OPC, the suggestions
of the committee were thus - “With increasing use of information technology and computers,
the emergence of the service sector, it is time that the entrepreneurial capabilities of the people
are given an outlet for participation in economic activity. Such economic activity may take
place through the creation of an economic person in the form of a company. Yet it would not
be reasonable to expect that every entrepreneur who is capable of developing his ideas and
participating in the market place should do it through an association of persons. We feel that it
is possible for individuals to operate in the economic domain and contribute effectively. To
facilitate this, the committee recommends that the law should recognize the formation of a
single person economic entity in the form of ‘One Person Company’. Such an entity may be
provided with a simpler regime through exemptions so that the single entrepreneur is not
compelled to fritter away his time, energy and resources on procedural matters”. Besides, the
Companies Act 1956 had been prepared for meeting the needs of the then requirements and the
act had been passed through a series of amendments during its 57 years long life2. Time and its
requirements are the major parameters for substantial revise of an act to make it more
contemporary. Under this backdrop, the Companies Bill regarding formation and establishment
of OPC was passed by the lower house of parliament, Lok Sabha, in December of 2012 and
sent to the President of India for final authorization. Finally, the revolutionary concept of OPC
was introduced in the Companies Act, 2013 and the Ministry of Corporate Affairs allowed to
form OPC by G.S.R. Notification No. 250 (E) dated 31st March 2014 notified the Companies
(Incorporation) Rules, 2014 under the Companies Act, 20133.

a) OPC may be registered as a private Company with one member and may also have at least
one director;

b) Adequate safeguards in case of death/disability of the sole person should be provided

through appointment of another individual as Nominee Director. On the demise of the original
director, the nominee director will manage the affairs of the company till the date of
transmission of shares to legal heirs of the demised member.

c) Letters ‘OPC’ to be suffixed with the name of One Person Companies to distinguish it from
other companies

2
Section 2(62) of the Companies Act 2013
3
https://www.icsi.edu/Docs/Webmodules/ONE%20PERSON%20COMPANY.pdf;june 2014
 Meaning and characteristics
The concept of OPC is a legitimate way to incorporate a company with only one member.
There is no needed to have co-founder to start such business. An OPC is a hybrid structure
wherein it combines most of the benefits of a sole proprietorship business and a company form
of business. It has only one person as a member who will act in the capacity of a shareholder
as well as a director. Thus, it does away the hassles of finding the right kind of co-partner/s for
starting a business as a registered entity. The best part is a legal and financial liability is limited
to the company and not the member4. As the name suggests, an OPC is a form of private
company with a separate legal entity which is formed with only one person as its member.
Since such company has only one member, the company enjoys certain privileges or
exemptions as compared to other companies. OPC is similar to the existing concept of sole-
proprietorship business with separate legal entity distinct from its proprietors and promoters 5.
OPC can run and undertake its business like sole-proprietorship with the status of the company.
This new concept of business may encourage various small and medium-size enterprises doing
business as sole proprietors to organize their business into the corporate domain. As per law,
“One Person Company6 means a company which has only one person as a member.”

Features7

An OPC bears the following features:

(a) An OPC has only one person as a member/share holder.

(b) Only “Naturally-Born" Indian and resident of India is eligible to incorporate an OPC.

(c) Joint-holder of share(s) would not constitute double membership and they can form an OPC.

(d) The words “One Person Company” must be mentioned in brackets below the name of the
company to distinguish it from other forms of companies.

(e) The Memorandum of OPC shall indicate the name of the nominee.

(f) The written consent of nominee shall be filed with the Registrar at the time of incorporation
of the OPC along with the Articles of Association.

4
https://www.icsi.edu/Docs/Webmodules/ONE%20PERSON%20COMPANY.pdf;june 2014.
5
Journal of Politics and Law, para 1, Vol. 5, No. 3; 2012, www.ccsenet.org/jpl.
6
Section 2(62) of the Companies Act 2013.
7
(g) The nominee should be a natural person, an Indian citizen, and resident in India.

(h) The nominee may be changed at any time and intimated the same to the Registrar.

(i) It can be registered as a private company.

(j) It may either be a company limited by share or by guarantee or an unlimited company.

(k) The paid up share capital is minimum Rs. 1 Lakh and maximum Rs. 50 Lakh.

(l) It must have a minimum of one director and maximum fifteen directors.

(m) If the Articles of Association do not contain the name of the first director, the sole
shareholder/member can be the sole director.

(n) Every OPC shall have to hold at least one meeting of the Board of Directors in each half of
a calendar year and the gap between the two meetings is not less than ninety days.

(o) All the businesses to be transacted at the meeting of the Board shall be entered in the
minute’s book.

(p) The financial statements of an OPC consist of Profit & Loss Statement, Balance Sheet and
Notes to Account.

(q) The Cash Flow Statement may not be included in the list of financial statements.

(r) The financial statements shall be signed by only one director.

(s) OPC shall file the copies of the financial statements to the Registrar of Companies (ROC)
within a period of 180 days from the closure of financial year.

(t) The annual return of an OPC shall be signed by the Company Secretary or by the director
of the company where there is no Company Secretary.

(u) Every contract should be informed to the ROC and should be recorded in the minutes of
the Board of Directors meeting.

Some of the disadvantages identified with OPCs are8:

It is strictly prohibited to invite public for purchasing of shares.

Shares of an OPC are not transferable.

8
(Rule 3 of Companies (Incorporation) Rules, 2014)
 A person shall not be eligible to incorporate more than one OPC.

A person shall not be eligible to become the nominee in more than one such company.

Minor cannot become member or nominee of an OPC.

The nominee can withdraw his consent at any time.

The owner of OPC is the only supplier of the capital fund.

An OPC cannot be incorporated or converted into a company under section 8 of the

Companies Act, 2013.

An OPC cannot carry out Non-Banking Financial Investment activities including investment
in securities of anybody

corporate.

Foreign Companies are not allowed to incorporate their subsidiaries in India as OPCs.

An OPC cannot be converted voluntarily into any kind of company unless two years have
expired from the date of

incorporation.

Threshold limits of capital and average annual turnover are Rs. 50 Lakh and Rs. 2 Crore
respectively.

Process of incorporation9
 Obtain Digital Signature Certificate [DSC] for the proposed Director(s)
 Obtain Director Identification Number [DIN] for the proposed director(s)
 Select suitable Company Name, and make an application to the Ministry of Corporate
Affairs for availability of name
 Draft Memorandum of Association and Articles of Association [MOA & AOA]
 Sign and file various documents including MOA & AOA with the
 Registrar of Companies electronically
 Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty

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  Scrutiny of documents at Registrar of Companies [ROC]
 Receipt of Certificate of Registration/Incorporation from ROC

Opc and sole proprietorship

OPC structure would be similar to that of a proprietorship concern without the ills generally
faced by the proprietors10. One most important feature of OPC is that the risks mitigated are
limited to the extent of the value of shares held by such person in the company. This 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. One Person
Company has a separate legal identity from its shareholders i.e., the company and the
shareholders are two different entities for all purposes. On the other hand proprietorship does
not have a separate legal identity from its members. The existence of a One Person Company
is not dependent upon its members and hence, it has a perpetual succession i.e., death of a
member does not affect the existence of the company and the Sole proprietorship is an entity
whose existence depends on the life of its members and death or any other contingency may
lead to the dissolution of such an entity. In OPC the business head is the decision maker, he is
not dependent on others for suggestions or implementation of suggestions etc., resulting in
quicker and easier decision making. He is the sole person who runs the business and hence, the
question of consensus or majority opinion etc., does not arise.

10
https://www.icsi.edu/Docs/Webmodules/ONE%20PERSON%20COMPANY.pdf;june 2014.
 OPC and company

There are many provisions of the Companies Act, 2013 that are not applicable for the One
Person Company. The following provisions are not applicable of the Companies Act, 2013

a) Section 98: Power of Tribunal to call for meetings of the members.

b) Section 100: Calling for Extraordinary General Meeting

c) Section 101: Notice of meeting

d) Section 102: Statement to be annexed with the notice

e) Section 103: Quorum for meetings

f) Section 104: Chairman of meetings

g) Section 105: Proxies

h) Section 106: Restrictions on voting rights

i) Section 107: Voting by show of hands

j) Section 108: Voting through electronic means

k) Section 109: Demand Poll

l) Section 110: Postal Ballot

m) Section 111: Circulation of members resolution

furthermore, there are other provisions making an OPC different from a company-

 The financial statement of One Person Company is not to include the Cash Flow
Statements.
 Alternative to AGM, EGM and other general meetings– The Act provides that any
business which is required to be transacted at an AGM or any other general meeting of
the company by means of ordinary or special resolution, it shall be sufficient if, in case
of one person company, the resolution is communicated by the sole member to the
company and entered in the minutes book and signed and dated by the sole member
 Section 173 (Frequency of board meetings): A minimum of four board meetings of the
board of the directors in each year is required to be held in such a manner that not more
than 120 days shall intervene between two consecutive meetings of the board.
 In case of One Person Company, if there is only one director, there is no such
compulsion to conduct such board meetings so as to comply with section 173.
 The annual return of a One Person Company shall be signed by the company secretary,
or where there is no company secretary, by the director of the company.
 The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to
holding of general meetings, shall not apply to a One Person Company.
 A One Person Company needs to have minimum of one director. It can have directors
up to a maximum of 15 which can also be increased by passing a special resolution as
in case of any other company.
 Conversion
Conversion of OPC into Public or Private Company and Vice-Versa .One Person Company to
convert itself into a public company or a private company in certain cases11.-

(1) Where the paid up share capital of an One Person Company exceeds fifty lakh rupees or its
average annual turnover during the relevant period exceeds two crore rupees, it shall cease to
be entitled to continue as a One Person Company.

(2) Such One Person Company shall be required to convert itself, within six months of the date
on which its paid up share capital is increased beyond fifty lakh rupees or the last day of the
relevant period during which its average annual turnover exceeds two crore rupees as the case
may be, into either a private company with minimum of two members and two directors or a
public company with at least seven members and three directors in accordance with the
provisions of section 18 of the Act.

(3) The One Person Company shall alter its memorandum and articles by passing a resolution
in accordance with sub-section (3) of section 122 of the Act to give effect to the conversion
and to make necessary changes incidental thereto12.

(4) The One Person Company shall within a period of sixty days from the date of enhancement
of above ceiling limit, give a notice to the Registrar in Form No.INC.5 informing that it has
ceased to be a One Person Company and that it is now required to convert itself into a private
company or a public company by virtue of its paid up share capital or average annual turnover,
having exceeded the threshold limit. It may be noted that "relevant period" means the period
of immediately preceding three consecutive financial years;

(5) If One Person Company or any officer of the One Person Company contravenes the
provisions of these rules, One Person Company or any officer of the One Person Company
shall be punishable with fine which may extend to ten thousand rupees and with a further fine
which may extend to one thousand rupees for every day after the first during which such
contravention continues.

(6) A One Person company can get itself converted into a Private or Public company after
increasing the minimum number of members and directors to two or minimum of seven
members and two or three directors as the case may be, and by maintaining the minimum paid-

11
https://www.icsi.edu/Docs/Webmodules/ONE%20PERSON%20COMPANY.pdf;june 2014.
12
Ibid.
up capital as per requirements of the Act for such class of company and by making due
compliance of section 18 of the Act for conversion.

Analysis
The expectation that the bankers will provide funds easily to OPCs seems unrealistic. At
present, bankers do insist on collateral and other securities for extending credit facilities to
small individual business entrepreneurs. Since the OPC now allows the same individual
proprietors to claim limited liability, the risk avenue is more to the bankers.

The concept of OPC is still in its nascent stages in India and would require some more time to
mature and to be fully accepted by the business world. With passage of time, the OPC mode of
business organisation is all set to become the most preferred form of business organization
specially for small entrepreneurs. The benefits emanating from this concept are many, to name
a few –

• Minimal paper work and compliances

• Ability to form a separate legal entity with just one member

• Provision for conversion to other types of legal entities by induction of more members and
amendment in the Memorandum of Association. The One Person Company concept holds a
bright future for small traders, entrepreneurs with low risk taking capacity, artisans and other
service providers

• Provision for conversion to other types of legal entities by induction of more members and
amendment in the Memorandum of Association. The One Person Company concept holds a
bright future for small traders, entrepreneurs with low risk taking capacity, artisans and other
service providers.
 Conclusion
The concept of One Person Company is advantageous both for the regulators and the market
players. The conferment of the status of private limited company on a One Person company
will not only limit the liability of sole entrepreneurs but also provide access to market players
to various credit and loan facilities and hence would encourage entrepreneurship. However,
this concept has been criticized on grounds of excessive procedural formalities and tax burden.
Further, this concept is also being regarded as unnecessary as India already has a Limited
Liability Partnership Act, 2008, which limits the liabilities of the members of a partnership.

Freedom should always be regulated and hence the procedural requirements in incorporation
and operation of a One Person Company are merely to check the abuse of liberty and immunity
given to single person business entities. Hence, this concept, if implemented properly, will act
as a big incentive for small entrepreneurs and thereby will boost the economic growth of the
country.
 References
 Company Secretary (CS) Module (2014), One Person Company, The institute of
Company Secretaries of India, available at:
https://www.icsi.edu/Docs/Webmodules/ONE PERSON COMPANY.pdf
 Swati Shankar and Shubham Gautam, Indian Law Journal, Vol. 7, issue 1.
 http://www.caclubindia.com/articles/one-person-company-a-new-business-ownership
concept-20452.asp
 Companies (incorporation) Rules, 2014
 Report of the “Expert Committee on Company Law” available at:
http://www.primedirectors.com/pdf/JJ Irani Report-MCA.pdf
 Namrata Gupta, One Person Company, International Journal of Legal Insight, Vol 1,
Issue 3.