One Person Company (OPC): Definition, Features, Formation etc.

Definition of One Person Company

The full form of OPC is One Person Company. An OPC, defined under Section 2(62) of the Companies Act of 2013, is a private company with just one member. Unlike sole proprietorships, OPCs are separate legal entities, meaning the company’s liabilities do not affect the personal assets of the member.

OPCs are an excellent option for solo entrepreneurs who wish to gain the benefits of a corporate structure without the need for additional shareholders. By combining limited liability protection with simplified compliance, OPCs have become attractive for those looking to establish a secure and scalable business.

Features of a One Person Company

From having a single member and a nominee to enjoying certain privileges under the Companies Act, OPCs stand out as a distinct entity. Here are some key features and advantages of an OPC:

• Single Member Structure: OPCs allow a single individual to own and manage the company.
  

• Nominee Requirement: A nominee must be appointed during registration to take over the business in case the member dies.
  

• Private Entity: OPCs are classified as private limited companies.
  

• Limited Liability: The member’s liability is limited to their investment in the company.
  

• Exemptions: OPCs enjoy exemptions from several compliance obligations, such as annual general meetings.
  

• No Perpetual Succession: The OPC’s existence is tied to its member and nominee.
  

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Example of One Person Company (OPC)

To better understand how a One Person Company (OPC) functions, let’s look at a hypothetical example:

Example: Elite Decor OPC Private Limitedv

Industry: Interior Design

Scenario:
Ravi Sharma is an interior designer with a growing client base. Initially, he operated as a sole proprietor, but he wanted to expand his business, protect his personal assets, and gain more credibility with clients.

Ravi decided to register his business as an OPC, Elite Decor OPC Private Limited, under the Companies Act, 2013. By doing so:

1. He became the sole member of the OPC, retaining full ownership and control of the business.
   

2. He appointed his spouse, Priya Sharma, as the nominee, ensuring continuity of the business in case of his death or incapacitation.
   

3. His liability was limited to the amount he invested in the company, protecting his personal assets like his home and savings from business risks.
   

Benefits Ravi Experienced:

• Limited Liability: Any debts or losses incurred by the company would not impact Ravi’s personal wealth.
  

• Separate Legal Entity: Clients and vendors saw Elite Decor as a professional entity, improving trust and credibility.
  

• Ease of Compliance: Ravi benefited from exemptions like not needing to hold annual general meetings (AGMs), saving time and effort.
  

Through this OPC model, Ravi successfully grew his business while enjoying the benefits of limited liability and a corporate structure.

Formation of One Person Companies

Forming a One Person Company (OPC) is a straightforward and streamlined process governed by the Companies Act, 2013. Here’s a step-by-step guide to help you navigate the formation of an OPC:

Membership in One Person Companies

Membership in a One Person Company (OPC) is governed by specific rules outlined in the Companies Act, 2013, ensuring that the structure remains unique to individual entrepreneurs. Here’s an overview of the eligibility and restrictions associated with OPC membership:

Who Can Be a Member?

1. Indian Citizens Only:

   • Membership is restricted to natural persons who are Indian citizens and residents.
     

   • A resident is someone who stayed in India for at least 182 days in the preceding financial year.
     

2. One OPC Per Individual:

   • A person can be a member or nominee in only one OPC at a time, ensuring exclusivity.
     

3. Minors Are Not Allowed:

   • Minors are prohibited from becoming members or nominees of an OPC. This ensures that legally capable individuals bear the responsibilities and liabilities.
     

Role of a Nominee

Every OPC requires a nominee to take over the company in the event of the member's incapacity or demise. The nominee:

• Must also be an Indian resident and citizen.
  

• Can withdraw or cancel their nomination by notifying the member and the company through the prescribed forms.
  

Natural Persons vs. Corporate Entities

Only natural persons are eligible to become members or nominees of an OPC. Corporate bodies, LLPs, or partnerships cannot hold membership, emphasizing the personal ownership aspect of the OPC model.

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Difference Between OPCs and Sole Proprietorships

While both structures allow solo ownership, they differ significantly in terms of liability, legal status and compliance requirements. 

An OPC provides the benefits of limited liability and a separate legal identity, ensuring personal assets are protected from business risks. 

On the other hand, a sole proprietorship is simpler to set up but ties the owner's personal finances directly to the business, increasing financial vulnerability. 

Here are some key differences between OPC and Sole Proprietorship:

Conversion of OPCs into Other Companies

The conversion of a One Person Company (OPC) into other company types is governed by specific regulations under the Companies Act, 2013. This flexibility allows businesses to evolve their structure as they grow or to meet operational and strategic needs. Here’s an overview of the conversion process and rules:

Mandatory Conditions for Conversion

1. Turnover Threshold:

   • An OPC must convert into a private or public limited company if its paid-up share capital exceeds ₹50 lakh or its average annual turnover exceeds ₹2 crore in the previous three financial years.
     

   • The conversion must be completed within six months from the date these thresholds are crossed.
     

2. Prohibited Conversions:

   • Due to legal restrictions, an OPC cannot be converted into a Section 8 company (non-profit organisation).

Voluntary Conversion

• Eligibility for Voluntary Conversion:

  After two years from the date of incorporation, an OPC can voluntarily convert into a private or public limited company.
  

Steps for Conversion of OPC into a Private Limited Company

1. Conduct a General Meeting:

   Pass a special resolution. Convene a meeting of the sole member (or board if applicable) to approve the conversion resolution. 
   

2. Amend MOA and AOA:

   Update the Memorandum of Association (MOA) and Articles of Association (AOA) to reflect the new structure.
   

3. File Required Forms:

   Submit Form INC-6 to the ROC and supporting documents, such as the updated MOA, AOA, and resolution copy.
   

4. Obtain Certificate of Conversion:

   Upon successful verification, the ROC will issue a certificate confirming the company’s new status.
   

Privileges of One Person Companies

Mandatory Conditions for Conversion

1. No Annual General Meetings (AGMs): OPCs are exempt from holding AGMs.

2. Simplified Reporting: Financial statements require less detailed disclosures.

3. Director Remuneration: Increased flexibility in director remuneration.

4. Minimal Board Meetings: A single meeting is sufficient for many decisions.

5. Relaxed Governance: Compliance obligations are simplified, enabling easier operations.

These privileges of an OPC empower solo entrepreneurs with the freedom to focus on growing their businesses without being overburdened by compliance requirements.