Earlier, you needed at least two shareholders to set up a private company in India. So, if a person wanted to venture alone, the only way was through proprietorship which is a task too cumbersome in itself and hence not a very motivating option at all.
The introduction of One Person Company, or OPC, through the passing of the much awaited Companies Act 2013, by the Lok Sabha is a step that will usher corporatization of small businesses and empower small entrepreneurs, saving their time and energy and resources from complex legal processes.
If you are looking to cycle alone but are finding it daunting, here are the few privileges of a One Person Company in India listed below to motivate you.
- Limited Liability: The most important reason for the shareholders to slot in the 'single person company' dynamics is most certainly the desire for limited liability. As mentioned before, sole proprietorship is also an option for you but OPC has its advantages. The fundamental difference between a sole proprietorship and an OPC is how the liability is treated. OPC forms a separate entity with a stark difference between the promoter and the company. The liability of the share holder will be restricted to the unpaid subscription money in his name. On the other hand, in a sole proprietorship, the person or the owner is solely accountable for the business claims which will be made. This way, the personal assets of the owner remains secured should the business land up in many a crisis.
- Compliance Burden: One person Company is included in the definition of Private Limited Company given under section 2 (68) of the Companies Act, 2013. Hence, an OPC will be have to live by the rules set for private companies and all the provisions will apply. But here is the good part: OPCs have been provided with a number of exemptions and therefore have lesser compliance related burden. Some of the available exemptions are:
- Section 96: Option to dispense with the requirement of holding an AGM
- Section 98: Power of Tribunal to call meetings of members.
- Section 102: Statement to be annexed to notice.
- Section 103: Quorum for meetings.
- Section 104: Chairman of meetings.
- Section 106: Restriction on voting rights.
- Section 107: Voting by show of hands.
- Section 109: Demand for poll
- Organized Sector of Proprietorship Company: What OPC does well is to bring the unorganized sectors of Proprietorship into an organized version of a private limited company. That way, many small and medium businesses operating as small proprietors can enter the corporate domain. It will also provide a plethora of baking facilities to them. And the liability of the member will be limited too, as discussed above.
- Requirements are minimal: Some of the requirements are very basic and listed below.
- Minimum 1 Shareholder
- The director and shareholder can be same person
- Minimum 1 Director
- Minimum Share Capital shall be Rs. 1 Lac (INR One Lac)
- Minimum 1 Nominee
- Letters OPC has to be suffixed with the name of OPCs to differentiate them from other companies
- Legal status and social recognition for your business: A one person company model is the most trusted in the world. It gives the suppliers as well as the customers a sense of confidence in your business. History suggests that large organizations favor a deal with private limited companies over proprietorship firms any day. That is because a One Person Company has a defined business structure which enjoys a corporate status, thus drawing in a more qualified workforce and then retaining them through corporate designations, say directorship.
- Safeguards: The process after your demise is well defined. When the original director is no longer alive, or isn't able to serve the functions owing to a disability, another individual is appointed as the nominee director. He/She in turn will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.
- Easy loans from the bank: As discussed above, owing to a greater discipline in the business structure and a more qualified workforce in the corporate set-up, banks are willing to assist with hassle-free loans. In all admission, proprietary firms don't find it as easy today.
- One owner: The beauty of One Person Company is that the owner can appoint as many as fifteen directors in the company for administrative functions without compromising on an iota of shares. So, the real power remains vested in a single individual.
- Easy to manage: There is no requirement to annual general meetings, thus saving much time that can be devoted to greater tasks at hand. Only that the resolution will have to be communicated by the member of the company and entered in the minutes book, duly signed and dated by the member. That date will be considered as the date of the meeting. When it comes to board meeting, a One Person Company may conduct at least one meeting of the Board of Directors every six months however, two meetings shall not be less than 90 days apart. In addition, quorum for meetings for boards shall not apply.
- Goodbye middlemen: When small entrepreneurs are allowed in the business by setting up a One Person Company, the shareholders have an uninterrupted direct access to the target market and can avail credit facilities, bank loans rather than getting lost in the maze of middlemen. And not having to share your profits with middlemen is the greatest advantage.
- Perpetual succession: Through perpetual succession, a corporation's or other organization's existence can be continued despite the death, bankruptcy, insanity, change in membership or an exit from the business of the owner. This makes it easier for entrepreneurs to raise capital from the market. But since OPC is an entity separate from the owner, thus making him less liable, the creditors should therefore be warned that the claims against the business are not the same as claims against the owner.
- Filling with ROC: Very few need to be filed with the Registrar of Companies (ROC). The rotation of auditor after expiry of maximum term is not applicable, making things simpler. The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of general meetings, also does not apply to OPC.
- Flexibility and tax savings: In OPC, it is possible for you to make valid contracts with other shareholders or with one or more of the directors. So, even if you are a director, you can receive remuneration. Even as a leaser, you can receive rent. Even as a creditor, you can receive money. There are no hard and fast rules to limit your role.
- Easy switch: Businesses currently run under the proprietorship model can get rechristened as a One Person Company without any difficulty.
To summarize, a One Person Company (OPC) is a combined package: it has the qualities of a Sole Proprietorship business and that of a Private Limited Company (PLC), thus providing a continuum with the best of both worlds.