The concept of One Person Company in India was introduced through the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a One Person Company (OPC) is that there can be only one member in an OPC, while a minimum of two members are required for incorporating and maintaining a Private Limited Company or a Limited Liability Partnership (LLP). Similar to a Private Limited Company, a One Person Company is a separate legal entity from its promoter, offering limited liability protection to its sole shareholder, while having continuity of business and being easy to incorporate.
The concept of One Person Company in India was introduced by Dr. Jamshed J.
in his Report on Company Law dated 31st May, 2oo5 . As per the report, Dr. Irani
recommended that with the increasing use of information technology and emergence
of a strong service sector in India, it was time for the Government to empower
entrepreneurs who on their own are capable of developing ideas and participating
in the marketplace. He suggested that entrepreneurs who on their own are capable of s
tarting a venture should not be made to do it through an association of persons,
and should be able to create a single person economic entity in the form of ‘One Person Company’.
Further, it was also suggested that such an entity may be provided with a simpler regime
through exemptions so that the single entrepreneur is not compelled to fritter away his time,
energy and resources on procedural matters.
Till the introduction of One Person Company in India, the Limited Liability and Continuous Existence feature was only available to an association of persons such as a Private Limited Company or Limited Liability Partnership or a Limited Company. With the introduction of One Person Company, the limited liability and continuous existence feature is now also available for One Person Company, which is an entity with just one member. As One Person Company has just one member, it is necessitated by the law for the single member of the Company to designate another person in the Memorandum of Association, who on the event of subscriber’s death or incapacity shall become the person to contract. This mechanism provides an adequate safeguard to ensure continuous existence of the entity even in case of incapacitation of the single member.
Before exploring the concept of a one person company, let us have a brief understanding of the various types of companies that can be formed. A company can be established for a lawful purpose by the following number of persons:
1. Seven or more persons, in case of a public limited company.
2. Two or more persons, in case of a private limited company.
3. One person, in case of a one-person company.
Unlike a private limited company, a one person company has certain restrictions associated with its incorporation. Hence, before starting an OPC registration, its essential to understand the constraints and ensure the promoter is eligible as per the Companies Act to register a OPC.
1. Only a natural person who is Indian Citizen and resident in India can incorporate OPC.
2. Resident in India means a person who had resided in India for a period not lesser than 182 days in the prior calendar year..
3. Legal entities like Company or LLP cannot incorporate a OPC.
4. The minimum authorised capital is Rs 1,00,000.
5. A nominee must be appointed by the promoter during incorporation.
6. Businesses involved in financial activities cannot be incorporated as a OPC.
7. OPC must be converted to a private limited company when paid-up share capital exceeds Rs.50 lakhs or turnover crosses Rs.2 crores.
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