One Person Company - As per companies act, 2013

One Person Company (OPC) is a new type of business structure in India, introduced through the Companies Act, 2013. One Person Company is a hybrid between a Private Limited Company and Proprietorship, providing a single entrepreneur with a host of features only available for an association of people.Definition as per companies act, 2013 sec.2 (62): -

“One Person Company” means a company which has only one person as a member.

Formation of Company: -

Incorporating a One Person Company in India is very similar to the incorporation of a Private Limited Company. A one person company may be formed for any lawful purpose by one person. 

Compliances for formation:-

1. Verification of applicant for application for DIN in form DIR 4.

2. Application for allotment of DIN in form DIR 3 to ROC.

3. Application in form INC 1 to ROC for reservation of name set out in Application as:-

(a) The name of the proposed company; or

(b) The name to which the company proposes to change its name. Sec.4(4).

4. Preparation of Model MOA & Model AOA as per Schedule I may be adopted by a company as may be applicable to the case of the company, either in totality or otherwise. (Rule 11, Chapter II)

5. Nomination by the subscriber or member of One Person Company: - (Rule 4, Chapter II & Sec. 3 of the Act).

6. Application with the Registrar within whose jurisdiction the registered office of the company is proposed to be situated, in Form No.INC.2  (Rule 12, Chapter II)

7. After Satisfying by Registrar, the Certificate of Incorporation shall be issued by the Registrar in Form No.INC.11. (rule 18, Chapter II).

Objective of OPC: -   

1. Increasing the entrepreneurial capabilities for better participation in economic activity.

2. The person has to give a separate name and legal identity to the company under which the entire all the activities of the business are to be carried on. This ensures that a separate legal entity is formed.

3. OPC will bring the unorganized sector of proprietorship into the organized version of a limited company.

4. OPC will give the greater flexibility to the individual or a professional to manage the business efficiently.

Benefits/Relaxation of Compliance Requirement: 

If we compare with the other companies like other private companies and public companies.

1. Minimum number of director for an OPC is one and the maximum is 15.

2. There is no requirement of appointment of first directors as the sole member shall be deemed to be the first director.

3. There is no need to conduct the meeting like AGM and EGM.

4. OPC can ignore the provisions relating to meetings:-

(1) Power of tribunal to call meetings of members.

(2) Calling of extraordinary general meeting.

(3) Notice of Meeting

(4) Statement to be annexed to notice 

(5) Quorum for meetings

(6) Chairman of meetings

(7) Proxies

(8) Restriction on voting Rights

(9) Voting by show of hands

(10) Voting through electronic means

(11) Demand for Poll 

(12) Postal Ballot

(13) Circulation of member resolution 

5. Only one director is sufficient to sign the Annual Returns to be submitted to ROC.

6. If there is more than one director then at least a Board Meeting twice a year required to be conducted.

7.  Only one director is sufficient to sign the financial statement and Director’s report.

8. Within 6 month from the closure of the financial year, OPC should file the copy the financial statement with the registrar.

9. The Sole Member may transact the any business which may require a resolution –ordinary or special, by means of communication through a member of the company and entering it in the minute book.

Statutory requirements:- The report of the of the Board of Directors to be attached to the financial statement under this section shall, in case of a One Person company ,mean a report containing a containing a explanation or comments by the Board on every qualification , reservation or adverse remark or disclaimer made by the auditor in his report.

Analysis of Sole Proprietorship organization with the One Person Company

OPC gives the advantage of limited liability to entrepreneurs whereby the liability of member will be limited to unpaid subscription money. This benefit is not available in case of sole proprietorship.

Small entrepreneurs can now set up ‘One Person Company’ to directly access target markets rather than being forced to share their profits with middlemen. This provides tremendous opportunities for millions of people, including those working in areas like handlooms, handicrafts and pottery. They are working as artisans and weavers on their own, so they don’t have the legal entity as a company. But the OPC would help them do business as enterprises and give them an opportunity to start with their own ventures with a formal business structure. 

An OPC being an incorporated entity will also have the feature of perpetual succession and will make it easier for entrepreneurs to raise capital for business. Also, since it will have lesser compliances burden compared with private companies. It can be preferred mode for business for small industries.

Drawbacks:- 

1. Democratic Decision Making: - Any Joint stock company is known for its democratic decision making through different genres of meeting by virtue of its stipulation of more than one member. This is one of the basic characteristics of a company. Voting Power also involved a democratic atmosphere where proper decision could be taken and investor’s money was secured. Therefore, in the absence of such restriction, One Person Company could be seen as an autocratic form of organization without any iota of accountability.

2. Perpetual Succession: - The very concept of a separate legal entity being created for a perpetual succession that is continuation of the company even after the death or retirement of a member is also challenged. Because the nominee whose name has been mentioned in the memorandum of association will become the member of the company in the event of death of the existing member. However it is doubtful that it would do any good for the company because the person is not being a member of the company and also not involved in the day to day operation of the company, would not be able to succeed the business after the death of the member.

Main disadvantages are, the mandate of mentioning in the stationary and sign board of a company the words One Person Company would mar the whole idea of forming a company and take away its credibility. Advantage of a limited liability is the main danger of poor corporate governance might pose some threats to the investors.

3. Separation of Owner and Control: - This is one of the characteristics of the company, which is seriously challenged by the new Companies Act, 2013, where the line between the ownership and control is blurred. This might result in unethical business practices.

4. Limited Liability: - If the limited liability concept is taken seriously, it might be dangerous for stakeholders and for investors as it would open ways for fraudulent activities.

5. Compliance Cost: - One of the main disadvantages would be the High Incorporation Cost and Cost of Statutory Compliance, which is of recurring nature.     

6. Tax Benefits: - As the Income tax Act is silent on the taxability of a One Person Company, It would be rightfully decide that, in the explicit pronouncement, a One Person Company would be taxed at the same rate as that of all other companies. This would again be disadvantageous as proprietorship firm enjoy the tax rate applicable to an individual.

Conclusion: - To conclude the discussion, it would be rightfully said that the Concept of OPC suffer from more disadvantages than advantages.  We need to understand that a One Person Company has only one member because it lacks funds, capital and professionalism attached to a limited company. It is just one notch above a sole proprietorship firm which has registered itself in striving for better market, economic and management opportunities. It remains to be seen if the OPC model is widely adopted.