One Person Company (OPC) a separate legal entity with just one member. Unlike a private limited company which requires minimum 2 shareholders and 2 directors, an OPC can be formed with only one shareholder (there is a nominee director, but with no power until the original director is incapable of entering into contract).
OPC is registered under the Companies Act 2013 with the Ministry of Corporate Affairs. Do not get confused with a sole proprietorship. Sole Proprietorship is not the same as One Person Company.
One Person Company Vs Proprietorship Concern
|One Person Company||Sole Proprietorship|
|Separate Legal entity||Not a Separate Legal Entity|
|Limited Liability||Unlimited liability|
|Perpetual succession||No perpetual succession|
|Registration required||Registration not required|
|Financing depends on the credit record of the OPC||Financing depends on the credit record of the owner|
|Repayment of Loan is not the sole responsibility of the OPC||Repayment of Loan is the sole responsibility of the of the owner|
Entrepreneurs who register as an OPC can run the business without worrying too much about 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.
For example1, if Sam invested Rs 100,000 to start a One Person Company. The liability is his investment of Rs 100,000. In other words, his potential loss cannot be beyond Rs 100,000.
On the other hand proprietorship does not have a separate legal identity from its members.
The existence of 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.
For example2, in a partnership firm, a change in the membership leads to dissolution of the existing partnership whereas in a private limited company, one shareholder may transfer his shares to another, but the company still continues to operate.
Other the other hand, 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.
Salient Features of OPC (One Person Company)
Only One Shareholder: To incorporate an OPC, it is important that the person registering the company is an Indian citizen and a resident in India. Being a resident in India here means that the person registering the company must have stayed in India for at least 182 days (counting from the immediate calendar), or must have stayed for 60 days or more during that particular financial year and has lived in India for 365 days or more during 4 preceding years (counting from the relevant financial year).
Shareholder’s Nominee: It is important for the shareholder to nominate another person who shall in case of initial shareholder’s death or insufficiency to handle the business, take charge of the business and become the shareholder. Also, the initial shareholder must keep in mind that the nominee too must be a citizen and resident of India.
Director: The company must comprise of at least one Director. The shareholder can also become the sole Director. The maximum number of Directors a company can have is 15.
Procedure to Register a One Person Company
Obtaining DSC – DSC application need to be filed along with ID and address proof duly attested by bank manager, gazetteer officer or post master.
Obtaining DIN – It’s a unique number which is allotted to the Director of a company by the Ministry of Corporate Affairs (MCA).
Name Approval – A minimum of one and maximum of six proposed name can be submitted to the MCA for name approval.
MOA & AOA – MOA is a legal documentation which defines activity of the company. AOA is the rule book of company operations.
Company Incorporation – After submitting the documentation the Ministry of Corporate Affairs will issue a certificate of incorporation.
Application for PAN & TAN – Once the Ministry of Corporate Affairs issue the company incorporation certificate, we will apply for the TAN & PAN.
An OPC being a recognized as a corporate entity with equity shares, you can raise capital from others like venture capital, financial institutions etc., You will have to convert into a Private limited at this time. OPC need no hold general meetings every year.
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.
Limited Liability, the status of being legally responsible only to a limited amount for debts of a company. Unlike proprietorships and partnerships, in a limited liability company the liability of the members in respect of the company’s debts is limited.
If the average turnover in the last 3 financial years is more than Rs. 2 crores or if the capital is more than Rs 50 lakhs, then the OPC must be converted into a private limited. (Mandatory conversion)
If you plan to add another shareholder in the OPC, it can be done only after 2 years has elapsed from the date of incorporation. (Voluntary Conversion).
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