Getting Familiar with a ‘One Person Company’ (OPC) in India

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By A&A LAW

The law of companies is ever evolving, and 2013 saw the introduction of the updated Companies Act. The Act contained one of the most significant steps in the direction of modernizing the law for companies in the introduction of One Person Company (OPC). Defined under Section 3 (1) (c) of the Companies Act, 2013, an OPC is basically a limited liability company that is owned by one person only. It was the J.J. Irani Expert Committee that first recommended the formation of such a type of company.

In the earlier 1956 Act, a minimum of two directors and shareholders were required to constitute a company. But for incorporating and conducting a One Person Company, only one person (as the name suggests) is required who can be the director of the company as well as the shareholder of the company.

Section 2(62) of the Companies Act, 2013 defines an OPC as a company with only one person as its member. An OPC can register as ‘Limited by Shares’ or ‘Limited by Guarantee’. Nevertheless, the memorandum of One Person Company must indicate the name of the other person, with his/her prior written consent in the manner as prescribed. Such person who has been nominated in the memorandum, shall in the event of the death of the only subscriber or his/her inability to contract, become the member of the company. The written consent of such a person is required to be filed with the Registrar of Companies at the time of the incorporation of the One Person Company along with its memorandum and articles of association.

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Relaxation Available to OPCs (One Person Company)

The OPCs are privileged in a certain way. Mentioned below are concessions or relaxations that are available to an OPC but not to regular companies:

  • There is no need to prepare a cash flow statement;
  • The annual return can be signed by the Director and not necessarily by a Company Secretary;
  • There is no necessity for an Annual General Meeting;
  • Specific provisions as related to general meetings and extraordinary general meetings do not apply;
  • Compliance can be said to have been met with if the resolutions are entered in the minutes’ book of the company;
  • It will suffice if one director signs the audited financial statements;
  • Financial statements can be filed within six months from the close of the financial year as against 30 days;
  • An OPC is required to hold only one meeting of the Board of Directors in every single half of a calendar year, and the gap between the two meetings should not be less than 90 days.

If you notice, most of these relaxations are related to compliance. This is done mainly because an OPC can be successfully used as a business tool and the person incorporating it is not faced with the regulatory hassles as in the case with a regular company.

Can a Body Corporate Form an OPC?

As per Singapore law, a Company can be the one person in a One Person Company, so, for example, if you have an existing company where you are a director, you can form a One Person Company with your company as the only director.   

For instance, consider that you have a company called Malini Textiles Pvt Ltd. with you and your friend Akash as directors. Now you may want to import textiles from Italy for sale in India and would want to have a distinct entity to do that (for accounting and taxation purposes). As per Singapore law, you are entitled to form a One Person Company with Malini Textiles Pvt Ltd, as the sole person in the company. However, In India, the law does not allow a company to be a “person” in an OPC, and only a natural person can form a ‘One Person Company.’   

The following are the rules put forth by the central Government with regards to forming an OPC:

  • Only a natural person who is an Indian citizen and resident of India shall be eligible to incorporate an OPC or be appointed as a nominee for the sole membership of a One Person Company. The term ‘resident in India’ means a person who has stayed in India for not less than 182 days during the immediately preceding financial year;
  • No person shall be eligible to incorporate more than one OPC or become the nominee in more than one such company;
  • No minor shall become a member or a nominee to such a form of company;
  • If a One Person Company exceeds the paid-up capital of Rs 5,000,000 (US$ 74,624), then it needs to be mandatorily converted into a private or public company. Also, if the annual turnover exceeds Rs 20,000,000 (US$ 298,494), it must be converted into a private or public company.
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How Can a ‘One Person Company’ be Converted into a ‘Private Company’ or ‘Public Company’?

It is possible for a One Person Company to get itself converted into a Private or a Public Company. In order to do so, it needs to increase the minimum number of members and directors to two (for a private company) or have a minimum of seven members and three directors (in case of a public company). Additionally, it must maintain the minimum paid-up capital as per the legal requirements of such a class of company, meeting due compliance with Section 18 of the Companies Act and Rule 7(4) of the Companies (Incorporation) Rules, which lay down the necessities of such making such conversion.

However, an OPC cannot be converted voluntarily into any other kind of company unless two years have expired from the date of its incorporation.

How Can a ‘Private Company’ be Converted into a ‘One Person Company’?

A private company other than the company registered under Section 8, which deals with non-profit associations, having a paid-up share capital of Rs 5,000,000 (US$ 74,624) or less and with an average annual turnover during the relevant period of Rs 20,000,000 (US$ 298,494) or less may convert itself into a One Person Company by passing a special resolution at the general meeting.

Penalty

If any One Person Company or the officer of such a company contravenes with any of the provisions of the Companies Act, 2013, then s/he will be held liable to pay the penalty, which may extend to Rs 5000 (US$ 74.62), and in the case of repeated offense, with a fine, which may extend to Rs 500 (US$ 7.46) for every day after the first offense during which period such contravention continues.

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