One Person Company (OPC)
CS. Meenakshi Jayaraman
DVS Advisors LLPIndia-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
Credits and AcknowledgmentsBharathi Priya R D
Presentation Schema
OPC – Rationale & Origin
OPC & Sole Proprietorship
Features / Privileges
available to OPC
Incorporation Procedures
Changes in Nominee or
MemberContracts by OPC Conversion Conversion
Procedures
Penalty Benefits & Limitations
Concept of OPC outside India Statistics
OPC – Rationale
A novel / pioneering concept introduced in Companies Act, 2013 as a steptowards harmonization with rest of the world
To encourage small and medium enterprises who have the wherewithalin terms of ideas and skills to organise their business into the corporatedomain
To provide a corporate cloak for start-ups and small time businessmen atthe same time saving them of compliance requirements
To guard the individual against any pitfall of liabilities; desire for limitedliability drives an individual to form OPC
Origin of OPC - J J Irani Committee Report
To unleash the entrepreneurial talent of people in IT driven environment, law should recognize OPC
Law should recognise formation of single person economic entity in the form of a company
Classified companies on the basis of size / number of members / basis of control / liability / onthe basis of manner of access to capital
Simpler regime through exemptions so that a single entrepreneur / member need not fritter awayhis time, energy and resources on procedural matters
Additional safeguard in the event of death / disability of a member
Letters “OPC” to be suffixed to distinguish the same from other companies
OPC & Sole Proprietorship
OPC – One Person Company Sole Proprietorship
Separate Legal Entity – cardinal principle germane tothe corporate legislation inherited from UK
Owner and Entity are the same
Limited Liability – Risks mitigated are limited to thevalue of shares held in OPC; Best part of OPC – Legal &financial liability is limited to company & not members
Unlimited Liability
Perpetual and automatic succession – thus mandated requirement of nomination
No Perpetual succession
Registration is compulsory No Registration
OPC means a company which has only one member and one nominee for such member with aminimum of one director OPC can run and undertake its business as sole-proprietor with status of a company – OPC thusprovides benefits of both forms of business
Features of OPCOPC can be formed only as a private company limited by shares or limited by guarantee or as an unlimitedcompany
Words “OPC” to be mentioned within brackets below the name to distinguish from other form ofcompanies
OPC must have minimum of one director and maximum of 15 directors. To have more than 15 directors,special resolution must be passed
OPC gives the benefits of a private limited company like access to bank loan, limited liability with relaxedcompliance requirements
OPC will have direct access to market and wholesale retailers without middlemen’s intervention
OPC – Eligibility criteriaOPC must have only one member and one nominee for such member. Minor cannot become a memberor nominee of OPC or hold shares with beneficial interest
Member and nominee must be Indian citizens and residents in India i.e. minimum stay of 182 days inIndia for the immediately preceding calendar year
A person who is a resident in India can be a member or nominee only in one OPC
OPC cannot be incorporated or converted into a Charitable Company (Sec 8)
OPC cannot carry out Non-Banking Financial Investment activities including investment in securities ofany body corporate
Privileges Available to OPC
Easy incorporation and conversion procedures
Mandatory rotation of auditors is not
applicable; Preparation of Cash flow statement
is not compulsory
Annual return to besigned by CS or wherethere is no CS it can besigned by director itself
AGM / EGM / noticeconvening generalmeetings are notapplicable to OPC
Proxies / Voting by electronic means /
through postal ballot are not applicable to
OPC
Limited Board’s Report disclosure – to specify only the qualifications in the auditor’s report
One Board meeting shall be held in each
half year with gap between 2 meetings not less than 90 days
No Board meeting is required if there is only
one director and Quorum is not
applicable
Financial statements can be signed by only
one director & submitted to auditors
Financial statements can be filed with
Registrar within 180 days from the end of FY
Provides surreal opportunity to first gen entrepreneurs instead of carrying business in sole proprietor form
A boon for start-up entrepreneurs with new business ideas
Incorporation Procedures
Obtain DSC and DIN for the proposed Directors
Select suitable Company Name and make an application to the Ministry of Corporate Affairs foravailability of name
Draft Memorandum of Association (MOA) and Articles of Association (AOA)
Sign and file MOA and AOA with the Registrar of Companies electronically in SPICe Form No.INC-32
Scrutiny of documents and receipt of Certificate of Registration / Incorporation from ROC
Incorporation Procedures
The subscriber of OPC shall nominate a person in Form No.INC-32 as nominee after obtaining prior writtenconsent in INC-3 who shall act as a member in the event of member’s death or incapacity to contract
eMOA which includes additional disclosure stating to buy all the shares of OPC and appointing a person asnominee in INC-33 and eAOA in INC-34
Simplified Proforma for incorporating Company electronically (SPICe) e-form (INC-32): OPC can avail 5 differentservices in one form:
Name Reservation, Allotment of Director Identification number (DIN), Incorporation of New Company,Allotment of PAN and Allotment of TAN
Changes in Nominee or Member
Member can at any time for any reason change the person nominated by him
A nominee may withdraw his consent at any time by giving a notice in writing. Within 15 days, new nomineemust be appointed by the member and within 30 days, the same must be intimated to Registrar
In the event of member’s death or incapacity to contract, nominee becomes the member and within 15 dayshe must appoint a nominee and within 30 days it must be informed to Registrar
A notice of such withdrawal of consent and intimation of name of another nominee must be filed withRegistrar in Form No.INC 4 along with written consent obtained from the new nominee in Form No.INC3
If a member becomes a member in another OPC by virtue of being a nominee, he must withdraw hismembership from any one OPC within 180 days
Contracts by OPC
Where OPC limited by guarantee / shares enters
into a contract
With member who is also the director and if such
contract is not in the ordinary course of
business
Such contract must be in writing and recorded in
MOA or recorded in minutes of first meeting of
the board held after entering into contract
Such contracts should be intimated to Registrar
within 15 days from the date of approval of the
board
Conversion Conversion
OPC to Public Company or Private Company
Voluntary conversion
After 2 years ofincorporation, OPCcan be converted
Compulsory conversion
If paid up capital > ₹50,00,000and if average annual turnover> ₹2 crore during the Relevantperiod
Private Company to OPC
If paid up capital < ₹50,00,000and if average annual turnover< ₹2 crore during the Relevantperiod
Relevant period means the immediately preceding three consecutive financial years
Conversion Procedure for OPC
Within 60 days of exceeding the prescribed limit, a notice be given to Registrar in Form No.INC.5 that it ceasedto be an OPC and is required to convert itself into private company or public company
Alteration of MOA and AOA should be done for conversion by passing a resolution
Convert within 6 months from the date on which its paid up capital > ₹50,00,000 and the last day of therelevant period during which its average annual turnover > ₹2 crore as the case may be
After 2 years from the date of incorporation, OPC can be converted into Public Company or Private Company
Conversion to Public Company can be done afterincreasing the minimum no. of members to 7 anddirectors to 3
Conversion to Private Company can be done afterincreasing the minimum no. of members to 2 anddirectors to 2
Conversion Procedure for Private company
A private company other than a charitable company can convert itself into OPC provided its paid upcapital is <= ₹50,00,000 and average annual turnover is <= ₹2 crore
No objection certificate must be obtained form members and creditors and a special resolution mustbe passed in a general meeting for such conversion
Copy of the special resolution must be filed with the Registrar within 30 days from the date ofpassing such resolution in Form No. MGT. 14
File an application in Form.No.INC.6 for conversion by attaching the requisite documents
Directors declaration in affidavit, list of members and creditors, latest audited B/S and P&L account,copy of no objection letter from secured creditors
On being satisfied, Registrar shall issue the certificate
Penalty
Penalty – Rule 7A of Companies (Incorporation) Rules
Penalty for contravention of Companies (Incorporation) Rules: Where OPC / any officer
contravenes the provisions of these Rules
Punishable with a fine of ₹10,000
Further fine of ₹1,000 for every day after the first offence during which the contravention
continues
BenefitsLegal status - Ability to form a separate legal entity with just one member
Quicker and easier decision making
Process of setting up and running – simple & comfortable
Minimal paper work and minimum compliance
Complete control of the company with single owner
Easy to get loans from banks as legally recognised
Hybrid structure to combine the benefits of sole proprietorship and company form of business
Limitations
MAT and DDT will
apply
Tax rate –30%
Owner is the only
supplier of capital
Company Audit
Only residents can start
OPC
Annual compliance procedures
Member in not more
than one OPC
Can’t be wholly owned
subsidiary
Nominee in not more
than one OPC
Minor cannot
become member or
nominee
Nominee can
withdraw his consent
anytime
Cannot form Sec.8 company /
NBFC
Concept of OPC Outside India
United Kingdom enacted Companies (Single Member Private Companies) Regulation in 1992
United States of America allows formation of single member Limited Liability Company (LLC)
Singapore permits OPC under Companies Amendment Act, 2004
China and Pakistan recognize the formation of OPC
UAE and Turkish Commercial Code provides for LLC with one or more shareholders
Single member companies - a common law vehicle in corporate laws of many countries
StatisticsMonth of Registration 2019 No.of.OPC Registered
May 702
April 626
March 604
21
776
42 107
135
63
2272
126 32
9
266
46
3039
92
369
369
Agriculture Business services Finance, Insurance andReal Estate
Manufacturing Trading
Sector wise No.of.OPC registered
2014-15 2015-16 2016-17
Case Law: Salomon V. Salomon
Whether a company is distinct from its sole shareholder? – to claim the benefit oflimited liability
Legal fiction of corporate veil thus established that the company has a legal personalityseparate and independent from the identity of its shareholders. Liability limited to theextent of capital contributions
In OPC, the member is the owner and sole shareholder. However, OPC’s separate legalentity status cannot be undermined
Conclusion: OPC=One director & one member
Best suited for professionals – for it affords security in the form of limited liability;otherwise, professionals would be liable to an unlimited extent and even theirpersonal assets will be in jeopardy
A mixed blessing – while it avoids frittering away time, resource and energy byproviding exemptions / privileges in complying with certain procedural matters; itresults in higher tax liability
Concomitant changes to other laws may be brought in which includes devising a taxstructure that compliments OPC. There has been an enthusiastic response despiteseveral limitations contained in the law on the concept
Thank You
DVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
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