WHAT IS ONE PERSON COMPANY?
Published by: ISHITA CHINTA
BACKGROUND
JJ Irani Committee in the year 2005 recommended the concept of “One Person Company” it came into existence in the year 2013 with the reformed Companies Act, 2013. Before the restructuring of the Act in 2013 by the Parliament, there was a provision in the Companies Act, 1956 which specifically asked for not less than 7 members and 2 shareholders to form a company, which made the OPC non-existent. Dr. Irani headed the committee and made significant recommendations which lead to the formation of an OPC, which has increased opportunities for individuals in the country for those who are interested in starting their own company but with such flexibility.
WHAT IS A ONE PERSON COMPANY
OPC is a company having only one member as it’s member (as defined under section 2 (62)), this was introduced by the Companies Act, 2013 when it fully transformed the corporate sector in the country. It was the first time when a “limited liability company” was allowed to form by just one person. Another provision which deals with the OPC’s is section 3(1)(c) which says that any company formed by one person for lawful purposes will be called as ‘One Person Company” , which would fall under private companies when the person subscribes his name to a memorandum, fulfilling all the requirements according to the act in respect of the registration process. This basically means that there would exist only one shareholder and the remaining members would just be subscribers to the shareholder or the memorandum. There are two means of registering an “OPC” a. As “ limited by shares” b. As “limited by guarantee”
DIFFERENCE BETWEEN OPC, PRIVATE LIMITED COMPANY AND LIMITED COMPANY
Particulars One Person Company Pvt. Ltd Company Ltd. Company Applicable Legislation Companies Act, 2013 Companies Act, 2013 Companies Act, 2013 Process of Registration A one-person company requires a sole individual and that puts up to its convenience and easiness of registration. The procedure of registration for a Private Limited Company is costly and further complex. As this requires that all its members be individually registered, The registration process for a Ltd. Company is comparatively expensive and more complex. Members required Minimum one member. Maximum one member. Minimum two members. Maximum fifty members. Minimum seven Maximum-Unlimited Stock holding A sole member's overall stake in the company is 100%. For a sole individual the limit stake in the company can be 99 % of the overall shareholding. Their stocks are traded openly on the stock exchange. Directors Required Provided that there is a sole member, there seems to be no board of directors. minimum two maximum fifteen Minimum three directors. Maximum fifteen directors. Designation of the Company Suffix- ‘OPC’ Private Limited Example-ABC (OPC) Private Limited. Suffix- Pvt. Ltd. Example- ABC Pvt. Ltd Suffix- Ltd. Example-ABC Ltd.
WHAT IS THE DIFFERENCE BETWEEN SOLE PROPRIETORSHIP AND ONE PERSON COMPANY
Sole proprietorship is basically a one man company, where that one person who’s the sole proprietor is responsible for everything related to the business. Sole proprietorship and One Person Company may seem similar, but they are significantly different when we closely take a look at the following: Sole proprietorship has no hard and fast rule for registration whereas an OPC has to be compulsorily registered under the Companies Act, 2013 or the Ministry of Corporate Affairs. In a sole proprietorship, there exists only one proprietor whereas there is a minimum need of one person to start an OPC. Sole proprietorship is not considered to have a separate legal identity whereas an OPC is a separate legal identity. Once the sole proprietor dies the sole proprietorship also comes to an end, but an OPC continues to run even after the death of it’s only member. Sole proprietorship cannot be transferred to any other being, whereas OPC’s can be, but to one person only. Sole proprietorship under the provisions is taxed as an “individual” whereas an OPC is taxed as a private company, where the tax is 30% on the profits with addition of cess and surcharge.
Foreign ownership for a sole proprietorship is not allowed, whereas in an OPC, if one of the parties between the director or the nominee is a foreign citizen it is allowed to be an OPC, but both of them should not be a foreign citizen. There is unlimited liability in the case of a sole proprietorship, which means that the sole proprietor is liable for all the losses or profits whereas in an OPC there is only limited liability, which means the person has responsibility only over his own shares.
BENEFITS OF AN OPC AND CHANGES AS PER BUDGET 2021
The reasoning behind the One Person Company is to have all the advantages of incorporation while still operating as a sole owner. It is important to mention the benefits of the One Person Company as under- Independent Existence- The One Person Company is recognized as a distinct legal entity. A company is a person in the eyes of the law, with a common seal, and an endless succession. In the case of T.R. Pratt v. E.D. Sassoon & Co. Ltd. the Bombay High Court observed that “the incorporated company is a separate and different entity under the law, although it is possible that the entire share should be controlled by one person, the company should be identified as a distinct personality”.
Limited Liability- Different from Pvt. Ltd Company and Ltd. Company, the one-person company's limited liability principle means that the liability of a person is up to the extent of his share in the company. Single person owns the entire stake and also has full control over the company's operations. Thus, it can also be explained that the obligation of an individual will be to the degree that he has invested in the company. Complete Control of the Company- The Sole Owner fully owns and operates the OPC. This contributes to fast decision formation and implementation.
The Budget put forward by Indian Finance Minister Nirmala Sitharaman created room for easing standards to set up the OPC. Further, the state lowered the residency cap from 182 days to 120 days for NRIs to set up an OPC, enabling NRIs to integrate OPCs into the country. Earlier, in India, only Indian residents were permitted to form one-person companies.
CONCLUSION
OPC allows an individual to incorporate a corporation in their own conditions and avoids intervention. This idea therefore generates possibilities, too. In order to legally start an OPC and to operate effectively under it, the procedure is a bit long but a legitimate one, so it is necessary to obey them.
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