Did you know that many entrepreneurs in the early stages of their businesses prefer to incorporate a One Person Company instead of a sole proprietorship? Let’s find out why.
Introduction:
The revolutionary concept of One Person Company or OPC in India was introduced in India by the Companies Act, 2013 and soon it became a game-changer as far as Indian corporate laws were concerned. It accorded much-needed flexibility to young entrepreneurs looking to start a business by ensuring the protection of limited liability lacking in the sole proprietorship business model.
An OPC is ideally suited for persons who want to be their own boss. You can be your own boss with a sole proprietorship, but it doesn’t provide limited liability, separate entity status, as well as a superior market standing on account of increased credibility.
Here is a look at all you need to know about this corporate alternative to the sole proprietorship business model.
Definition of OPC
As defined in Section 2(62) of the Companies Act, 2013, an OPC is a company with only one shareholder as a member. Any individual can form an OPC for any lawful purpose, but they need to be a natural Indian citizen.
Newly amended Sub Rule (1) of Rule 1 of Companies (Incorporation) Rules, 2014 may be read as under-
Only a natural person who is an Indian citizen whether resident in India or otherwise –\
- Shall be eligible to incorporate a One Person Company;
- Shall be a nominee for the sole member of a One Person Company.
Do you want to start a One Person Company? You are just one click away from starting the incorporation procedure!
Features of an OPC in India
Some of the important features of an OPC company in India are as follows:
It is a private company
Section 3(1) (c) of the Companies Act clarifies that an OPC will be considered a Private Limited Company in all legal matters and disputes. All prevailing rules and regulations applicable to a private company will apply to an OPC as well.
Nominee
At the time of the One Person Company Registration, the sole shareholder of the OPC will need to appoint a nominee. The nominee is an individual who shall, in the event of the death or incapacity of the owner, become the shareholder of the OPC in India.
Perpetual succession
When the sole member of an OPC dies, the nominee has the choice of rejecting or opting to succeed them as the sole member. This option is not available for a sole proprietorship.
No minimum paid-up capital
The Companies Act has prescribed no amount in particular as the minimum paid-up capital for a One Person Company.
Number of directors
An OPC needs to have a minimum of one director and can have a maximum of 15 directors onboard. OPC’s needs to file a resolution to increase the number of directors.
Special privileges
The Companies Act bestows certain immunities and privileges on an OPC, which private companies are not eligible for. They are as follows:
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- Section 92 of the Act states that even the director can sign the annual returns of an OPC in India. A company secretary is not necessary.
- OPCs are not legally required to comply with the laws governing executive meetings and general body meetings.
- OPCs need not hold annual general meetings. The decisions taken in board meetings will meet compliance regulations when it is accounted for in a minute book, the member records and signs it.
- The financial statements of an OPC need not include its cash flow statements.
Advantages of a One Person Company in India
Simple and easy succession procedures
The succession procedures are quite simple for an OPC because one registers for the name of the nominee while establishing the OPC itself. Additionally, upon the death of the member, all of the OPC’s assets and liabilities are transferred to the nominee without the need for any long legal procedures, as is typically the case with sole proprietorships.
Protection of limited liability
In the case of an OPC in India, the liability of the shareholder is limited to his contribution to the share capital. Therefore, the personal assets of the sole member are not put at risk. Hence, we advise you to consider the OPC route if you are looking to start and run a business by yourself.
Same legal status as that of a private limited company
As OPCs are similar to private limited (Pvt. Ltd.) companies, it’s easier for such companies to get better banking and funding facilities. This fact gives OPCs better recognition and status in their industry or market.
Easy in compliance
An OPC has less stringent and more lenient compliance regulations. This reduces paperwork to a considerable extent and expenditure.
If you prefer limited responsibility and don’t mind a little operational transparency, an OPC is an ideal choice for you.
One Person Company Formation Procedure in India
As incorporation can be done online, the director’s signature is needed on electronic documents. To make this possible, the director in the OPC in India needs a Class 2 Digital Signature Certificate (DSC). A professional legal service provider such as Vakilsearch can handle the entire incorporation procedure on your behalf. Get in touch with our experts today!
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