Top 5 things to consider for incorporating One Person Company
Updated: Apr 22, 2022
With the aim of bringing the Indian corporate regime at par with global standards, many significant changes have been made in the Companies Act, 2013 and one of them is One Person Company (OPC).
In a Private Company, a minimum of 2 Directors and 2 Members are required whereas in a Public Company, a minimum of 3 Directors and a minimum of 7 members. However, with this new amendment, even one single person can incorporate a Company to enjoy the benefits of a company and do away with the unlimited liability that one is subjected to in case of a sole proprietorship.
We have highlighted below a few key criteria of the OPC:
Person entitled to incorporate OPC: A citizen of India whether resident in India or elsewhere (NRI’s) can incorporate OPC. "Resident in India" means a person who has stayed in India for a period of not less than 120 days during the immediately preceding calendar year. No person is permitted to incorporate more than one (01) OPC or become a nominee in more than one such company. ‘Nominee’ is a person authorised to run the company in the event the single member dies or is rendered incapable to enter into contracts.
Permitted Number of Directors and Members: As per Section 2(62) of the Company’s Act 2013, a company can be formed with just 1 Director and 1 member, and the same individual is permitted to fulfil the obligation of a director as well as of a member. The maximum number of Directors in OPC is permitted to be 15 persons which can be further increased by passing a special resolution. However, as the name suggests the maximum number of members allowed in an OPC is only one at all times. Thereby, restricting the options of receiving additional capital from other shareholders.
No minimum paid-up capital requirement: The minimum authorised capital for incorporating OPC is INR 100,000/- (Rupees One Lakh) but there is no minimum paid-up capital requirement.
Reduced Compliance Costs: An OPC is required to comply with provisions applicable to private companies as it includes the definition of “Private Limited Company” given under section 2(68) of the Companies Act, 2013. However, OPCs have been provided with a number of exemptions like no quorum or voting requirement and therefore have a lesser compliance-related burden as well as costs.
Easy conversion: OPCs’ are limited liability entities that can be converted into a private or a public limited company at any given point of time after fulfilling the criteria required for that company. However, it is pertinent to highlight that OPC cannot be incorporated or converted into a company under section 8 of the Act.
Although OPC enjoys many corporate benefits like opening avenues for more favourable banking facilities and giving suppliers and customers a sense of confidence in business, it also limits the possibilities of growth and expansion as OPC cannot have more than one shareholder at any point in time.