BASIC CONCEPT

The concept of an entity called a One Person Company (OPC) has been introduced by the Companies Act, 2013. Earlier, a company involved at least 2 persons to begin with.

  •    In such a company, a single person is the sole shareholder of the company who may as well be the Sole Director.
  •    The purpose is to enable small businessmen to function with a corporate identity, a separate legal entity having limited liability and Perpetual Existence, while remaining independent.
  •    Also, Compliances in the case of an OPC are a lot less as compared to those in the case of a Private Limited Company, in effect reducing costs.
  •    The member must appoint a nominee, and take prior written consent from him, who shall become a member of the company in case of death/ inability to contract of the owner.
  •    When an OPC’s paid up Capital exceeds 50 lakh rupees or if the average annual turnover of the company in the last 3 FYs exceeds Rs. 2 Crores, then the company must be converted into a private limited/ public company.

ADVANTAGES

  1. Small businessmen can get corporate status while remaining independent. They can be the sole owner and manager of their business, without requiring to find a dummy partner of any
  2. Freedom from many compliances, the time and cost involved as compared to a private limited
  3. Separate legal entity, social status, limited liability and perpetual succession.
  4. No Minimum paid-up capital required.(In all type of companies)
  5. Many entities prefer doing business with a company than a proprietorship/ partnership as it signifies a much more transparent entity to deal with.

LIMITATIONS

  1. The cost of Incorporation is same as a private limited company, because Incorporation cost consists majorly of the fees payable against ‘Authorised Share Capital’.
  2. Cannot convert to Private/ Public company before 2 years from incorporation (unless crosses the limits)
  3. Turnover limit of Rs.2 Crore may be too small for certain
  4. Such company cannot invest in another body
  5. Income tax – Single rate in case of an OPC = 30%, But If the business is performed as a Proprietorship – then gets the benefit of slab.

opc

FORMATION

  1. Only a Natural Person, who is a resident and a citizen of India can –
  • Form an OPC i.e. be a promoter of an OPC
  • Be a nominee in an OPC

IMPORTANT POINT: A person cannot incorporate or become a nominee in more than 1 OPC at a time. [Rule 3 of Companies (Incorporation) Rules, 2014]

Thus, it is clear that no other form of entity can own an OPC, except a ‘living human being’ to be precise.

  1. Prepare Memorandum and Articles– Format has been prescribed in the Companies Act, 2013 (Schedule I, Table A & Table F)
  1. The Procedure for Incorporation is as under –
  • Name reservation: Form INC-1 needs to be filed for name
  • Incorporation: After the name is approved, Form INC-2 needs to be filed for incorporation of the OPC within 60 days of filing form INC-1.
  • Form INC-22 must be filed within 30 days once Form INC-2 is registered in case the address of correspondence and registered office address are not same.

NOMINEE

Now, this concept is essential to maintain the GOING CONCERN of an OPC.

  1. The member of an OPC must appoint a ‘NOMINEE’, after obtaining prior written consent from
  1. The name of the nominee must also be mentioned in the Memorandum of the One Person
  1. Upon death of the member, such nominee becomes the member of the OPC and is entitled to the same dividends, rights and liabilities as the deceased
  1. Such person shall then appoint a new nominee within 15

DIRECTOR(S) [Section 152}

This is very interesting indeed. Now, when we think of a ‘Company’, another thing that concurrently comes into our mind is some sort of “Board of Directors” of that company, isn’t it? But what will be the ‘Board’ in a company where a single person is the owner and the manager and everything.

Well, friends… For those of you who don’t know, you are in for a surprise. Though an OPC can have a single member only, it can have more than 1 director!

Though the ownership of an OPC can lie only in the hands of the sole member, the management can be handled by a person, or even a group of people, who can be appointed as the directors, and it is even possible that the owner of the OPC is not one of the directors. The maximum no. of directors is 15.

Form DIR-12 must be filed linked with form INC-2 at the time of incorporation of the OPC if the promoter is not the sole director of the OPC.

  1. The Member shall be deemed to be the director until other directors duly appointed.
  1. A person must apply for and get a DIN (Director Identification Number) before he can become a director in any sort of
  1. Director must be appointed at a general

BOARD MEETINGS AND RESOLUTIONS [Sec 122(4)]

So, how will the board meetings be conducted then?

Case I: If OPC has only 1 Director (that is the owner himself)–

  1. For passing any Board Resolution, it shall be sufficient if –
  • The resolution is entered in the minutes-book required to be maintained under section 118
  • It is signed and dated by the director. (such date shall be deemed to be the date of the meeting of the Board of Directors for all the purposes under this Act)
  • Minimum no. of board meetings to be compulsorily held in a year = 0

Case II: If OPC has more than 1 Director –

  • It has to hold board meetings and pass resolutions as normally
  • Minimum no. of board meetings to be compulsorily held in a year = 2

(1 in each half of calendar year with at least 90 days gap between the 2 meetings in the year)

GENERAL MEETINGS AND RESOLUTIONS

  1. Holding of AGM is not mandatory for OPC. [Section 96(1)]
  1. Section 98 and section 100 to 111 do not apply to OPC. [Section 122(1)]
  1. For passing any shareholder’s resolution (whether ordinary or special), it shall be sufficient if – [Section 122(3)]
    1. The resolution is communicated by the member to the company
    2. It is entered in the minutes book required to be maintained under section 118
    3. It is signed and dated by the member (such date shall be deemed to be the date of the meeting for all the purposes under the Act)

ANNUAL FINANCIAL STATEMENTS, AUDIT & ROC FILING

  1. Cash Flow Statement is not mandatory for an OPC. [Section 2(40)]
  1. The financial statements may be signed by only one director before submission to the auditor. [Section 134(1)]
  1. Board Report to be annexed to financial statements need to contain only 1 thing–

“The Board’s Explanations and/or comments on all qualifications, reservations or adverse remarks or disclaimer by the auditor in his report” [Section 134(4)]

  1. A copy of the financial statements duly adopted by its member (along with Notes, Board Report, and Auditor’s Report) must be filed within 180 days from the closure of the financial year. [3rd Proviso to Section 137(1)]
  1. In Annual Return, the signature of a Company Secretary is not mandatory. [Proviso to Sec. 92(1)]
  1. Rotation of auditor not applicable. [Section 139]

MISCELLANEOUS POINTS

  1. RELATED PARTY TRANSACTION IN AN OPC: If OPC enters into a contract with its member who is also the director (other than in the ordinary course of business), the procedure prescribed in Section 193 must be complied
  1. DOUBLE TROUBLE: If a person becomes a member in an OPC due to the death/ inability to contract of its member, and he is also already a member in another OPC, then he must leave membership of one of them within 180

CONVERSION

[Relevant Provisions are present in the Companies (Incorporation) Rules, 2014]

  1. Cannot be converted into a Section-8
  1. Cannot convert VOLUNTARILY into a private/ public company unless 2 years has expired since the date of
  1. Must be converted into a private/ public company if –
    1. Paid-up capital of the company exceeds Rs.50 lacs, or
    2. The average annual turnover of past 3 FYs exceeds Rs.2 Crores

ON THE CONTRARY, THE VICE VERSA IS ALSO POSSIBLE

If, a private limited company does not exceed the above two limits, i.e., satisfies the above 2 criteria, then it can convert itself into an OPC!!

CRITICISM OF OPC

The single biggest criticism of the OPC that is very genuine too, is that it does not have any real benefit in terms of reduced compliances. It has been said that when we compare it with Private Limited Companies, then the difference in terms of compliance is too less to be considered. Let’s ponder over it ourselves…

The major compliance involved in a private company is that of audit and annual filing of forms ADT-1, AOC-4, and MGT-7 along with their relevant attachments.

Well, even in an OPC, you would have to get your audit done and file all the above 3 forms. Though there will be fewer formalities with respect to Board Meetings and General Meetings, but the practical reality is, who does meetings in small private companies anyways?

SUMMING UP

So, looking from an overall perspective, the introduction of the concept of a One Person Company can be regarded as a positive step towards legal innovations. It is a concept that recognizes that there can be individual people seeking to run their small business in a corporate format.

But, if somebody is looking towards the OPC form of entity hoping of reasonably reduced compliances, then he/ she might be a bit disappointed.

Once a small businessman decides to form a corporate entity, his Chartered Accountant will rarely advise him to form an OPC and advice to form a private limited company instead, because he also knows that the turnover limit of Rs. 2 Crore might be too low keeping in mind the future prospects, and the minimal comparative advantage of an OPC against it.

 

(Image Source: http://www.returnonkeycomponent.com/wp-content/uploads/2015/04/webinar.jpg)
Advertisements