One Person Company Concept, Definition and Features

One Person Company (OPC) is a significant concept introduced in the Companies Act, 2013, designed to cater to small entrepreneurs by allowing a single person to form a company. This concept recognizes the need for a business structure that bridges the gap between sole proprietorship and private limited companies. OPC offers the advantages of a company, such as limited liability, while simplifying the compliance requirements for a single business owner.

Definition of One Person Company:

As per Section 2(62) of the Companies Act, 2013, a One Person Company (OPC) is a company that has only one person as its member. Unlike traditional companies that require a minimum of two or more members, OPC allows a single individual to incorporate and operate a company as both the sole shareholder and director. However, the company must nominate another individual as a nominee to take over the company’s responsibilities in the event of the sole member’s death or incapacity.

In essence, OPC is a Corporate entity with the same legal recognition as a private limited company, but with the flexibility and control typically associated with sole proprietorship. This concept provides a significant boost to individual entrepreneurs by offering the benefits of limited liability and the legal structure of a company without needing multiple partners.

Features of One Person Company:

1. Single Shareholder Structure

The most defining feature of an OPC is that it has only one shareholder. This feature makes OPC suitable for individuals who want full control over their business operations without the need for partners or co-owners. The sole member owns the entire share capital of the company. However, the member must appoint a nominee who will assume ownership if the member is unable to run the company due to death or incapacity.

2. Limited Liability Protection

Like other types of companies, an OPC offers limited liability protection to its sole shareholder. The personal assets of the shareholder are safeguarded, and the liability is limited to the unpaid amount on shares held. This protection encourages entrepreneurs to take risks without fear of losing their personal wealth in case the business faces financial difficulties.

3. Separate Legal Entity

A One Person Company is considered a separate legal entity from its sole member. It has its own legal identity, distinct from the individual shareholder. This means the OPC can own property, enter into contracts, sue, and be sued in its own name, just like any other company. The existence of the OPC is independent of its member, ensuring business continuity.

4. Nominee for Continuity

One unique feature of an OPC is the requirement to appoint a nominee at the time of incorporation. The nominee takes over the responsibilities of the OPC if the sole member dies or becomes incapacitated. The nominee must give their consent in writing, and their name is registered with the Registrar of Companies. This provision ensures continuity of the business, even in unforeseen circumstances.

5. Less Compliance Compared to Private Limited Companies

One of the significant advantages of OPC is its simplified compliance structure. The regulatory requirements for OPCs are less stringent compared to other types of companies, especially private limited companies. For instance, OPCs are exempt from holding Annual General Meetings (AGMs), and their financial statements do not need to be filed with the same level of detail as other companies. This makes it easier for a single entrepreneur to manage compliance without excessive administrative burdens.

6. No Minimum Paid-Up Capital Requirement

Initially, the Companies Act, 2013, prescribed a minimum paid-up capital requirement for OPCs, but this requirement has been removed in subsequent amendments. Now, there is no prescribed minimum paid-up capital for forming an OPC, making it accessible for entrepreneurs with limited capital. The flexibility of capital structure allows businesses to start small and scale as needed.

7. Conversion into Private or Public Company

An OPC can be converted into a private or public company if the need arises. Once the paid-up capital exceeds ₹50 lakh or the annual turnover exceeds ₹2 crore, the OPC is required to convert itself into a private or public limited company. The conversion process is relatively straightforward and provides the option for entrepreneurs to scale their businesses as they grow.

8. Exemption from Certain Provisions of the Companies Act

OPCs are granted exemptions from some of the more complex provisions of the Companies Act, 2013. For example, OPCs are not required to prepare a cash flow statement as part of their financial statements. Additionally, OPCs do not need to hold board meetings if there is only one director, and the director can sign resolutions without needing a physical meeting.

9. Restrictions on Business Activities

An OPC cannot engage in Non-Banking Financial Activities (NBFCs), including investing or acquiring securities of other body corporates. Additionally, an OPC cannot voluntarily convert into any other kind of company unless it has been in existence for at least two years, or its paid-up share capital or turnover exceeds the prescribed limits. These restrictions ensure that OPCs remain small in scale and serve their intended purpose of supporting small businesses and individual entrepreneurs.