Incorporation of One Person Company: Concept and Procedure

Introduction

Anybody can get a basic idea of One Person Company by its name only, ONE PERSON COMPANY. As the name suggests, it is a form of Company which can be operated by ONE member only.

The concept of One Person Company is basically amalgamation of two forms of business structure i.e. Sole proprietorship and Private Limited Company. Since sole proprietors didn’t get much recognition and compliance of a Limited Company are cumbersome for a sole proprietor, a mixed form of business entity came into the frame known as One Person Company.

Few years back, people were only aware of the concept of forming a Company by minimum two numbers of members. But now a day One Person Company has gained its popularity as a simplified business structure.

One Person Company is governed under Companies Act, 2013 and persons who are willing to start their business as one person company has to mandatorily comply with the provisions given in Companies Act, 2013.

Advantages of Incorporating One Person Company (OPC)

One Person Company is incorporated as a Private Limited Company, thus it enjoys the status of separate legal entity and its liability is also limited. Apart from constitutional benefits one person company has been granted various exemptions and relaxation under Companies Act, 2013. Few of them are as given below:

  • Minimum Number of Member: For incorporation of OPC only one member is required as compared to minimum requirement of 2 and 7 members for a private limited company and public limited Company respectively.
  • Minimum Number of Director: For incorporation of OPC only one Director is required as compared to minimum requirement of 2 and 3 directors for a private limited company and public limited Company respectively.
  • Annual General Meeting: Since OPC is formed with one member only, it is not mandatory for OPC to conduct annual general meeting for OPC which is mandatory compliance for private and public limited company.
  • Board Report: Companies are required to prepare a detailed board report on activities of Company during a financial year and same is required to be filed with registrar of companies. OPC’s are provided exemptions and OPC can prepare Board Report in compact format without specifying exhaustive details as required for private and public limited company.
  • Other Relaxations under Companies Act,2013: Besides above mentioned few advantages of incorporating a OPC, Companies Act, 2013 has provided various other relaxation like non applicability of secretarial standard provisions, conducting of postal ballot , appointment of independent director, women director etc.

Points to remember while Incorporating One Person Company

  • Definition: As per section 2(62) of Companies Act, 2013 One Person Company means a company which has only one person as a member.
  • Eligibility: As per rule 3(1) of the Companies (Incorporation) Rules, 2014 only a Natural Person who is an Indian citizen whether resident in India or otherwise.

    This means a Company cannot be subscriber for One Person Company.

    Explanation I – For the purposes of this rule, the term “resident in India” means a person who has stayed in India for a period of not less than 120 during the immediately preceding financial year.

     Explanation II.- For the purposes of this rule, while counting the number of days of stay of a director in India for the financial year 2018-2019, any period of stay between 01.01.2018 till the date of notification of this rule shall also be counted

    Earlier only a person resident in India can form OPC however through Companies (Incorporation) Second Amendment Rules,2021 the same has been amended which is effective from 1st April 2021

    It is important to note that a minor cannot act as a member in OPC

  • Nominee: As per section 3 (1) of Companies Act, 2013, any person willing to incorporate one person company must nominate a person, whose name shall be mentioned in memorandum of association of the Company and who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of that One Person Company. Nominee should be a Natural Person who is an Indian citizen and resident in India. 

    A minor cannot act as a nominee in OPC

    Person to be appointed as Nominee has to provide a written consent which will be filed with the form of incorporation of OPC.

  • Restriction on membership and Nominee: As per rule 3(2) of the Companies (Incorporation) Rules, 2014 a natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a One Person Company
  • This means that any person can incorporate only 1 One Person Company not more than that and can act as nominee in 1 One Person Company. For example:

    If Mr. A has incorporated ABC (OPC) Private Limited he cannot incorporate any other OPC.

    If Mr. A is nominee in XYZ (OPC) Private Limited he cannot act as nominee in any other OPC

  • As per rule 3(3) of the Companies (Incorporation) Rules, 2014, if any member of OPC becomes member of another OPC by virtue of his being Nominee then he must decides to stay member in only one OPC within a period of 182 days.
    For Example:

    Mr. A is member in ABC(OPC) Pvt Ltd

    Mr. X is member of XYZ(OPC) Pvt ltd and Mr. A is nominee for Mr. X in XYZ(OPC) Pvt ltd

    Now in case of death of Mr. X, Mr. A will automatically become member of XYZ(OPC) Pvt ltd

    As Mr. A is already holding membership in ABC(OPC) Pvt Ltd he cannot act as a member in any other OPC and he has to comply with the provision within 182 days.

  • Object: One Person Company cannot carry business of Non-Banking Finance Company
  • Nomenclature: Name of OPC will end with “Private Limited” and also shall include OPC in the name for example XYZ (OPC) Private Limited.
  • Director: Minimum requirement of director in OPC is one, however OPC may appoint more than one director.

Points to remember after Incorporation of One Person Company

  • Voluntary Conversion: Any OPC can itself get converted into private or public company by increasing minimum number of members and directors and comply the provision of conversion given under Companies Act, 2013

    Mandatory Conversion: Rule 6 of the Companies (Incorporation) Rules, 2014 provides for mandatory conversion of OPC If paid up capital of OPC exceeds Rs. 50 Lakh or average turnover exceeds Rs. 2 Crore during the period of immediately preceding three consecutive financial, it will cease to be an OPC.

    Restriction on Conversion of OPC: As per rule 3(5) of the Companies (Incorporation) Rules, 2014 One Person Company cannot be converted into section 8 company i.e. Not for Profit organisation

  • Change in Nominee: Any person who has been mentioned as nominee can withdraw his consent by giving a notice to the member and OPC. Likewise member can also change the Nominee by giving notice to the nominee.

    In case nominee withdraws, Member will nominate another person within 15 days of receipt of withdrawal notice.

    OPC will file also file intimation of withdrawal and appointment to the Registrar of Companies within 30 days in both cases in Form INC-4.

    Eligible person willing to incorporate one person company can follow below given process:

    1. Make an application in Spice + with Central Registration Centre to reserve the name of the OPC.

      Naming guidelines as given in rule 8 of the Companies (Incorporation) Rules, 2014 will be applicable on OPC also.

    2. Alternatively, applicant can file name application alongwith incorporation in Spice +
    3. Fill details in the forms related to object of the OPC, Capital Structure, Directors, Registered office address etc.
    4. Fill details of Nominee and submit consent in Format INC-3 and submit the Form.
    5. Central Registration Centre will process the Form and after scrutinizing of documents, accord their approval and issue certificate of incorporation.

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