The minimum mandatory membership requirement, for a private limited company, is 2 members/ shareholders or in case of a public limited company, 7 members/ shareholders. The Companies Act, 2013, finally sought to bring some change to old regime and to boost the registrations witnessed by small businesses, by introducing the format of one person company.
In the corporate world, a one person company is akin to flying solo, and therefore, several rules and regulations have been relaxed by the Ministry of Corporate Affairs or MCA, that oversees activities relating to registration and the functioning of companies. The MCA mandates submission of returns every year by companies and requires them to file specified forms, depending on the actions taken by or within the company. So let’s cut to the chase here:
What is a One Person Company (aka OPC)?
A one person company, is a company formed by a single natural person as its sole member.
A member is a shareholder or a subscriber to its memorandum of association. Shares are nothing but units of ownership of a company and in case of a one person company, only one person holds the ownership of the company.
Memorandum of Association and Articles of Association are important documents created during the formation of any company, be it a private limited company or a public limited company or a one person company, that note down details about the structure and functioning of the company. In the case of a one person company, only one person is listed as the subscriber to the Memorandum of Association.
Who can and who cannot form a One Person Company?
Any natural person, who is a resident of India (a person is a resident of India if he has stayed in India for more than 182 days in the preceding year), can form a One Person Company. However, such a person needs to name one person in the One Person Company as his/ her nominee.
The following persons cannot form a One Person Company:
- A minor,
- A foreign citizen,
- A person incapacitated to contract,
- A non resident.
Who is a nominee?
A person forming a one person company, has to name one person as his/ her nominee, upon whom the membership of the Company shall devolve, in case of his/ her demise. This nominee has to be mentioned at the time of formation of the company. Only natural persons who are residents of India, are allowed to be nominees of one person companies. This is unlike the private and public limited company format, wherein private limited and public limited companies are permitted to hold shares of other companies.
How many OPCs can one person form?
Only one. One person can only form one one person company.
What are the advantages of a One Person Company?
- Separate legal entity/ separate legal existence: A One Person Company has a separate legal existence from its owner. And therefore, such OPC can sue or be sued in its own name.
- Limited Liability: The One Person Company format offers the benefits of limited liability to the person forming the One Person Company. In other words, the member of the OPC shall not be liable for the debts of the company personally. The liability of the member shall be limited to his share in the company.
- Relaxed corporate legal requirements: The Companies Act, 2013, does not prescribe OPCs to follow stringent guidelines and filing requirements. For example, OPCs are not required to hold Annual General Meetings, they do not have to comply with the requirement of independent directors etc.
- No minimum paid up share capital: To form a One Person Company, the Companies Act, 2013, does not prescribe any minimum amount of share capital.
What are the advantages of a One Person Company over a Sole Proprietorship form?
- Limited Liability: The liability of a sole proprietor goes beyond his liability from the sole proprietorship firm, it is, in other words, unlimited liability. Whereas, in a OPC, the liability of the sole member is limited to his share in the OPC.
- Separate legal existence: A One Person Company has a separate legal existence from its member, whereas, the sole proprietorship firm and the sole proprietor are one and the same.
What are the disadvantages of a One Person Company?
- No perpetual succession: Unlike regular private limited companies and public limited companies, there is no perpetual succession in One Person Companies. The membership of the One Person Company shall be handed over to the nominee in case of death of the original member or in case the original member is, due to some reason, unable to contract.
- Maximum limits of turnover and share capital: In case the share capital of the One Person Company exceeds Rs. 50 Lakhs, or in case the average annual turnover is in excess of Rs. 2 crores, over the last three years, the One Person Company has to compulsarily convert into a Private Limited or a Public Limited Company.
- Need for a nominee: A One Person Company, apart from having a sole member, also needs to name one person as the nominee. Therefore, this type of organisation is not truly formed by merely one person.
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